At this time of the year, I’ll give my 10 predictions for 2018, covering the macro economy, interest rates, currencies, stock markets and housing markets over next three weeks.
For next year, the global economic outlook remains promising, but growth in China may moderate in the first half of the year.
Various traditional and alternative economic indicators show that global economic growth has picked up since the second half of last year.
The purchasing managers index (PMI) of major economies has stayed above the 50 mark, which shows that the manufacturing sector remains in an expansion mode. Meanwhile, corporate earnings in different nations and regions have bottomed out since mid-2016 and continue to improve. South Korea’s exports, which are considered a “canary in the coalmine” for the global economy, has also enjoyed renewed growth since late 2016 and posted positive growth for 13 straight months.
In the meantime, other alternative economic indicators such as the Baltic Dry Index has been steadily improving for nearly two years. Caterpillar, the world’s largest construction equipment manufacturer, has posted improving sales.
Global market liquidity remains abundant. European and Japanese central banks are still pumping more liquidity into the market, while the US has tightened monetary policy but only at a gradual pace.
Global economic growth is thus likely to sustain an ideal rate in the first three quarters of next year,
However, China’s economic growth is now being dragged by a mix of deleveraging, supply-side reform and housing market curbs.
China’s new home price growth in 70 cities eased to 5.6 percent in October this year from 10.5 percent in late 2016. (Home price has been a good indicator of the overall economy). And the Li Keqiang index, an alternative way to track China’s economic growth, also dropped to the lowest level in more than one year.
Will China’s economic slowdown ripple through global economic growth? My guess is such a risk is quite low.
If the economy slows further, Chinese authorities are set to take action, such as monetary easing. Also, the US tax reform may further boost US growth and therefore global growth.
Oil prices are expected to rebound further to US$76.50 in coming months.
Although current oil prices are expected to encourage more shale oil production in the US, global economic growth momentum should remain strong for most of next year, providing solid support to oil demand and prices.
Technical analysis shows that in November, oil prices broke out of the consolidation band over the last six months, pointing to plenty of room on the upside.
This article appeared in the Hong Kong Economic Journal on Dec. 6
Translation by Alan Lee with additional reporting
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