The global economy will continue to grow strongly in 2018, with trade becoming more of a help than hindrance to economic growth.
At a briefing with Hong Kong’s media last week, National Australia Bank (NAB) economists revealed their forecasts for the coming year, with global GDP set to expand by 3.6% in 2018 and 3.8% in 2019, up from 3.4% in 2017.
The main drivers of this growth are recovering developed economies, particularly the US and EU. The US is set to grow at 2.1% this year and 2.3% next, up from 1.5% last year. The EU will expand by 2.2% and 2% this year and next, respectively, an increase on 2016’s 1.8%.
China, too, will continue to grow strongly, at 6.5% next year and 6.3% in 2019, however this is down from an estimated 6.7% this year.
And while global trade has proven to be a net drag on growth in recent years, NAB’s chief economist Alan Oster is confident that it will begin to contribute again, with strong consumption in major markets helping boost exports around the world.
“It’s helping a little bit. The old rule was that global GDP grows at 3.5%, trade grows at 7%. That hasn’t happened for a while. It still broadly isn’t happening. If I look at Asia’s trade hubs, Hong Kong and Singapore have growth rates of roughly 2.5% Where is the driver of Asian growth coming from? Big global economies. It’s sort of not back to the traditional relationship, but as economies start to grow, that should encourage trade,” he tells GTR.
China’s growth will be propelled by its services sector, which now represents more than 50% of the economy. Services will grow by 8% next year, helping to pull the economy away from a potential hard landing.
The forecast shows the progress made in the shift from an export and manufacturing-led economy to a services and consumption led-growth model, however high levels of corporate indebtedness represent the biggest single economic risk.
While a debt to GDP ratio of 300 is not something to be concerned about in isolation, the fact that it has been accumulated relatively quickly and that it is so heavily laden upon regional governments and state-owned enterprises (SOEs) does present a concern.
However, Oster says that China has ample reserves to help it absorb most crises on this front, but that it could become a major problem if there is no restructuring in the coming years.
China will be slightly heartened also by October’s trade data, released last week, which shows a seasonal decline in imports and a slightly disappointing export figure, but which points to healthy indicators nonetheless.
Imports were down 11.1% on September’s rate, but with a full week of holiday, this was anticipated. Compared with a year before, they grew 17.2% faster.
“This recovery relates to the firming of domestic demand since Q4 2016, supporting emerging Asian economies and the global economy more broadly. Still, it also reflects the general rise in import prices, as well as the pick-up of exports, since part of China’s imports are strongly related to exports. In annual growth terms, imports from the EU and Asia were particularly strong in October. Going forward, we anticipate the pace of import growth to slow next year, in line with our expectation of a gradual slowdown in GDP growth,” says Arjen van Dijkhuizen, senior economist at ABN Amro.
China’s export growth for October was 6.9%, slightly below expectations but feeding into an export recovery that’s been happening all year (7.5% growth from January to October). This points to the aforementioned improvement in the global economy, particularly in developed markets.
“Looking ahead, we expect any further weakening of exports to remain mild given the relatively upbeat outlook for growth in China’s main trading partners. In contrast, imports may eventually face a sharper slowdown as the drag on industrial activity from the pollution crackdown intensifies and the step up in fiscal support ahead of the Party Congress is reversed,” says Julian Evans-Pritchard, China economist at Capital Economics.