A. GLOBAL ENVIRONMENT
- Still going steady. Despite the US economy started on a weak note in 1Q17, which is not unusual, the global economy should stay on course to show a better performance this year. High frequency current and lead indicators, namely, the OECD Composite leading index, global Purchasing Managers’ indices for manufacturing and services as well as semiconductor sales continued to firm up, cementing positive optimism about the global growth. Investors’ optimism in global equities generally remained intact. Bouts of market volatility associated with intermittent doubts about the Trump’s shaping of economic policies, especially the outcome of the inward-looking policies and much awaited tax reforms. Some controversial issues surrounding the White House also spooked the market.
- 2017-18 global growth estimates tweaked higher. The International Monetary Fund (IMF) raised global growth forecast for 2017 but warns about protectionism. Global growth is expected to reach 3.5% this year (from 3.4% previously) and 3.6% in 2018. However, the IMF warned that risks to global growth remain to the downside with structural issues such as low productivity growth and high-income inequality holding back economic development. Pressures for the inward-looking policies are increasing in advanced economies. The US economy is expected to expand 2.3% this year, up from 1.6% in 2016. China's growth forecast is raised to 6.6% in 2017 and 6.2% in 2018. However, it warned the economy is over-relying on government stimulus and credit to maintain growth. The persistent resource misallocation raises the risk of a disruptive adjustment in China.
- Global central banks’ dovish comments signal an end to easy-money era? Though the Federal Reserve (Fed) is on track to move interest rates at a measured pace, it remains a challenging task for the Fed to continue normalising its interest rate whilst shrinking its balance sheet so as not to disrupt the economic recovery. The speed at which the Fed raises interest rates will depend on the level of fiscal stimulus and tax reform creates significant inflationary pressure. In the eurozone, the ECB removed reference to further rate cuts though it is too early to end its asset purchase programme. Bank of Japan offers no hint of future rate rises as it battles to reach the inflation target of 2.0%.
- Political, policy, regulatory and geopolitical risks at play. The threat of protectionism, the unexpected aggressive stance of the US monetary policy, regulatory barriers, geopolitical tensions in the Middle East, domestic political scenes in some advanced economies, including the on-going UK Brexit negotiations as well as rising terrorism threats represent a substantial drag on the global economic outlook.