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Global economy is buoyant

CHICAGO, Ill. — The global economy is performing much better than anticipated, says an economist.

Nariman Behravesh, chief economist with IHS Markit, said global growth in gross domestic product will be 3.2 percent in 2017, up from 2.5 percent last year.

“We’ve got the strongest growth since 2011,” he told delegates attending the 2017 DTN Ag Summit. “It’s very good news, and I think it’s sustainable.”

In fact, global growth is expected to match the 3.2 percent rate in 2018.

Growth is being led by the developed economies of the United States, the eurozone and Japan.

The eurozone and Japan were the real surprise. The eurozone had a two-year recession in 2012 and 2013 while Japan had three shorter recessions between 2011 and 2014.

Their economies were hampered by the combination of tight fiscal and monetary policies. The better performance since 2014 is due to a shift into looser policies.

Japan has had seven consecutive quarters of positive growth, which hasn’t happened in 10 years.

“Europe and Japan, after struggling for a number of years, have turned the corner,” said Behravesh.

“I don’t see them reversing anytime soon.”

The United States is the real driver of the global economy, and it is experiencing the third longest recovery since the 1850s.

It is growing at a clip of about three percent a year, which is well above the trend of two to 2.25 percent.

Consumers make up 70 percent of the U.S. economy, and they are experiencing growth in income, jobs and net worth. Consumer confidence is at a 17-year high.

Businesses are starting to spend more money on capital investments because they feel U.S. President Donald Trump’s administration is more business friendly than the Barack Obama administration.

“They feel they have friends in Washington,” said Behravesh.

“In the waning days of the Obama administration, one or two regulations were passed each day. Now it’s zero.”

If enacted, a business-friendly federal tax bill could add as much as 0.3 percentage points of growth in 2018.

The average length of a U.S. recovery is 60 months. This one has lasted 104 months. However, that doesn’t mean it is nearing an end. Recoveries vary wildly. There was one in the 1980s that lasted 12 months and another in the 1990s that went on for 120 months.

Shocks, such as failed monetary policies from the U.S. Federal Reserve, rising oil prices or bursting asset bubbles, kill off recoveries. Behravesh isn’t concerned about any of those things.

“This recovery could easily last another couple of years,” he said.

What does worry him is China’s growing debt crisis.

China’s debt-to-GDP ratio blossomed to 260 percent in 2016 from 120 percent in 2006. It is now higher than the U.S. ratio.

“No country has ever gone through that kind of a debt explosion without something bad happening,” he said.

China’s GDP growth is expected to fall from 6.8 percent in 2017 to 6.5 percent in 2018 and 6.2 percent in 2019.

It could slow down dramatically for a few years after that due to the rising debt load to maybe something in the three to four percent range, said Behravesh.

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