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November 19, 2019

Global economy accelerates, but inflation remains low


Global economyThe global economy accelerates and probably 2018 will be even better, but the growth will not lead to significant price pressures and will keep inflation low. While several central banks started to tighten their ultra-easy monetary policy, with a few exceptions, inflation is still below their targets and will generally remain so in the coming year.

This becomes a familiar refrain. Each quarter comes a new series of upward revisions to in the global growth forecasts, but correction of our global inflation forecasts are only downward. For central banks in the developed world, the task is getting harder. The battle with low inflation and rising risks to financial stability will require a delicate balancing from central banks and a more nuanced approach to inflation if global expansion proves to be sustainable

Expectations for global economic growth are at 3.5% in 2017, without change compared to a similar poll 3 months ago, but slightly lower than the updated International Monetary Fund (IMF) forecasts recently.

Although the consensus forecast for 2018 also remains stable at 3.6%, many economists say the risk for their forecasts is rather distorted.

The economists, however, lower their inflation expectations in 2017 for almost two thirds of the economies involved.

Almost a half of the economists consider that global inflationary pressures will not increase before 2019 or even after that, while a quarter believe it is unlikely to happen at all.

Global central banks are at different stages of tightening their ultra-easy monetary policy, but the low inflation almost everywhere is making the decision more complicated.

The US Federal Reserve is expected to raise interest rates in December and twice more in the following year. The uncertainty about Fed chairman also diminishes prospects.

The rising risk of chaotic Brexit will not stop the Central Bank of England from doing what most economists think is a political mistake by raising interest rates for the first time since a decade. The central bank is currently fighting inflation well above its target.

The Chinese economy is expected to expand 6.4% next year, although it faces risks from managing its huge debt and the inflated property market. The forecasts for inflation are to rise moderately by about 1.6% this year due to weaker food prices. However, it is expected to accelerate to 2.2% in 2018.

The world’s third-largest economy, India, is expected to grow by 6.7% in 2018, which is the worst pace since four years, following turmoil as a result of the ban on high-denomination banknotes last year and a new tax.

Brazil, which is the largest Latin American economy, this year is likely to overtake Mexico for the first time in five years due to its record low interest rates. Economists say GDP will grow by 2.3% in 2018.


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