Standard Chartered Bank has predicted stronger growth in the world economy this year. The international bank estimated that growth in 2017 would be higher than in 2016, just as it noted low volatility in asset markets and weakening inflation.
According to Standard Chartered Bank’s latest Global Focus, major central banks were keeping monetary policy accommodative.
Standard Chartered Bank’s Chief Economist, Marios Maratheftis said: “We expect the world economy to end 2017 and start 2018 with good momentum, despite on-going structural challenges. However, we do not ignore the possibility of policy shocks. We worry less about the period three to six months ahead, but think they could become more of a concern later in 2018.
“The positive outlook also depends on no further deterioration in global geopolitics, particularly in Korea. We assume rationality will prevail; but history demonstrates that this is not always the case.”
The report further pointed out that even though there were fears that asset markets were becoming frothy, the rebound in economic growth and market performance was not being accompanied by a credit boom.
Therefore, it noted that given the structural issues facing the world and the cyclical nature of the growth rebound, complacency needed to be avoided. Productivity growth is weak, especially in the west, it added.
“Geo-political risk is high, and given the problematic nature of domestic politics in the US, there is the added risk of a trade war.
“Debt levels are very high across developed and emerging economies, and they have increased since the global financial crisis.
“As a result, there is little space for fiscal policy to deal with shocks; with global interest rates low, the same is true for monetary policy,” the report stated.
Furthermore, the report noted that markets may have become too negative, following the reflation euphoria after Donald Trump’s election.
“In particular, there is a possibility that Trump and Congress could agree on some type of tax reform, likely to be limited in scope, providing the economy with fiscal stimulus.
“With a positive output gap, the US economy is operating at capacity and fiscal stimulus is more likely to push US rates and the dollar higher, but it will likely have very little impact on economic activity,” the report added.