World Economic Prospects Monthly

Overview: The return of global trade▀ The most important change this month is an upward revision to our trade forecasts. We expect global trade to grow 5% this year (from a previous 3.9%) as data for the start of the year shows a synchronised pick‐up in several regions. Surveys continue to suggest buoyant global activity, driven by manufacturing in several countries, which, in turn, is helping pull world trade from its 2016 lows. ▀ However, this partially reflects temporary factors such as stimulus measures in China, which is bolstering trade in the region and also benefitting major capital goods exporters such as Germany and Japan. As such, we remain cautious and expect growth will cool down in the second half of the year and going into 2018. ▀ Our forecasts see world GDP growth at 2.7% for 2017 and at 3.0% in 2018. We have nudged down our inflation forecast for this year to 3.0% from our previous 3.1%. ▀ Policy uncertainty in the US remains elevated. Despite a typical slow start to the year, GDP growth is expected to rebound in Q2 and average about 2% in 2017. A solid labour market will remain supportive of consumer spending despite firmer inflation. Business investment is rebounding cautiously. We see the Fed raising rates twice more this year, and starting to reduce the size of its balance sheet in Q4. ▀ Populism was defeated again in Europe, and Emmanuel Macron will be the next French president, in line with our long standing call. A brighter outlook for exports and investment coupled with improved sentiment in the continent has led us to upgrade our Eurozone GDP forecast to an above‐consensus 1.9% for this year. ▀ Stronger world trade continues to underpin a cautiously optimistic outlook for emerging markets. The pick‐up in activity in EMs is corroborated by soft data in the form of robust manufacturing surveys but also by hard data – industrial production in is at five‐year highs.