It’s been a good year for the economy—but 2018 might not go so smoothlyby George Magnus / December 12, 2017 / Leave a comment
With Christmas rapidly approaching, and 2018 just round the corner, it is time to down tools and consider some lessons from the world of economics this year. You might spend your Christmas eve watching the Festival of Nine Lessons and Carols at King’s College, Cambridge. To keep it seasonal, I’ve gone for nine lessons here, too.
So how did the economy perform, and what are the takeaways?
- Global growth was more solid and synchronised than expected
The world economy had a decent year. Global economic growth developed stronger sea-legs, and spread to important countries that had previously been plagued by recession and/or scandal, for example Brazil, South Africa and Russia. For the first time since the financial crisis, no major country or region experienced an economic contraction. The most welcome surprise, perhaps, was the build-up in cyclical economic expansion in the eurozone. The most predictable disappointment was the UK.
The International Monetary Fund’s October forecasts suggested that after 3.6 per cent in 2017—roughly the same as the average from 1990-2007—global growth momentum will roll over into 2018. But watch out. We normally have a business cycle downturn every 10 years or so, and the last one was in 2009. Don’t say you weren’t warned.
- The US expansion is going for gold
December marks the 102nd month of expansion in the US economy. If it keeps going to April 2018, it’ll rival the 2nd longest US expansion (Feb 1961—Nov 1970), and if it keeps going to July 2019, it will break the 120 month record (Mar 1991—Nov 2001). The Trump White House has mercifully had little impact on the economy so far, and with the economy growing at over 3 per cent at an annualised rate since the spring, the new proposal to cut taxes for firms and the better off will give the US economy a further lift going into 2018.
The consequences for the fiscal deficit—possibly over $1 trillion of lost tax revenues over the coming decade—inflation, interest rates, and eventually welfare when the tax cuts have to be paid for, are for another day. Will that day come before July 2019? Stay tuned.