Global economy recovering: Top international economist

The business cycle is warming up. Whether it was banking, trucks and autos, chemicals, mining, energy or construction, optimism was clear

GN Bureau | January 24, 2017


#world economic forum   #global economy   #Global Financial System Initiative  


For the first time in more than a decade we have a reasonably broad based recovery in the global economy, said Anders Borg, chair, World Economic Forum’s Global Financial System Initiative.
 
In an article “Davos download: global economic warming”, which is part of the World Economic Forum Annual Meeting 2017, Borg said that the business cycle is warming up. Whether it was banking, trucks and autos, chemicals, mining, energy or construction, optimism was clear.
 
Macro-forecasts seem to be in line with business sentiment and the projections of growth in the US are being revisited upwards. The IMF is raising the forecast for 2017 for the USA (2.3%), Germany (1.5%), UK (1.5%), Japan (0.8%) and China (6.5%). Other forecasters are actually even more optimistic about growth in the USA and expect GDP-growth to get closer to 3% for the first time in a decade. The fall of the pound sterling helps the UK and the banking crises in Europe are starting to abate.
 
China and India are continuing to print high numbers and Russia and Brazil are getting closer to dry land. For the first time in more than a decade we have a reasonably broad based recovery in the global economy, said Borg.
 
 
The article went on to say that for the rest of Asia, the Donald Trump administration is reinforcing the ongoing re-balancing towards China. Many Asian countries already have an export share with China of 20-30%. When the USA is retreating and is being perceived as an unreliable partner the only alternative is to strengthen the relationship to Beijing. This would inevitably have happened over the next coming decades, but Trump has fast-forwarded the development.
 
The banking sector has been a major drag on growth in Europe. The recovery of the stock prices the last couple of months comes on the back of raising interest rates, somewhat stronger demand and somewhat lower uncertainty concerning how Italy will deal with the non-performing loans. The new administration in the US will also mean that the Basel-process will going much slower and it is unlikely that the US will sign up to any international agreement on further tightening of capital requirements. In the short term this will push bank stocks further upwards also in Europe. In the long run another banking crisis has become much more likely. This time will not be different.
 
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