Global economic outlook getting better - HSBC

James Pomeroy, Economist at HSBC, explains that 2017 has started with a couple months of improving data and with inflation finally picking up across the developed world but the question is now whether this can be sustained

Key Quotes

“The first couple of months of 2017 have brought something that economists haven’t been used to for some time: robust survey and activity data and higher inflation. In the US, we’ve seen the ISM manufacturing survey at 30-month highs, non-farm payrolls have averaged around 200k since last summer and headline inflation is now above 2%. In Europe, both eurozone and UK GDP have surprised on the upside, PMIs are buoyant and inflation is running higher.”

“This has not just been a developed world story. Across Asia, trade data have followed the elevated PMIs and we’ve seen robust domestic demand in key markets with Q4 GDP growth rates largely surprising on the upside. In Latin America, the Mexican consumer continues to spend and even Brazilian data have shown some signs of turning round, with annual industrial production growth now in positive territory. Even data for some countries in the CEEMEA region have shown an improvement.”

“The data are so robust that the latest round of PMIs for February have the global manufacturing PMI at a five and a half year high.”

“On the inflation front, we’ve seen headline figures rise close to developed world central banks’ 2% targets in the past couple of months, but for now this appears to be largely driven by the oil price (or in the UK’s case, currency) effects. In most of our forecasts this should start to fade as we enter Q2, unless we see a sustained pick-up in wage growth or further rises in commodity prices.”

“In China, the rise in PPI inflation and the price components of PMIs suggest at least some inflationary pressures are coming through. Elsewhere in the emerging world, where in many markets food is a bigger share of the inflation basket (such as India), or where currencies have strengthened over the past year (Latin America), inflation is on the way down, and in some cases is allowing central banks to ease policy.”

“There are some signs that the upturn in inflation is weighing on consumer spending in the UK, and this may spread to other developed economies if our leading indicator for the consumer sector is correct. With a number of key elections over the coming months, political uncertainty has not gone away and may constrain investment growth, particularly across Europe, in 2017.”

“But at least in the short term the data are clearly pointing to a robust pace of growth in the world economy, especially by recent standards.”