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September 28, 2017

Global Economy: Developing economies lending thrust to growth

  • US puts forth strongest growth since 2015 in Q2 2017 at 3%
  • China’s annual consumer price index (CPI)-linked inflation shoots up to an eightmonthhigh of 1.8% in August
  • Commodity prices rose as crude oil and metal prices picked up

Even as the global economic engine is revving up, it is the emerging and developingeconomies that are providing the power in keeping with the International MonetaryFund’s outlook. While China registered impressive growth in the first half (H1) of 2017, theperformance of most advanced economies, especially the United States (US) and theUnited Kingdom (UK), was lackluster. However, the Euro area and Japan saved theblushes for the advanced economies by posting solid H1 growth. Global commodity priceshave also been on the upswing with the pick-up in crude oil and metal prices.


US posts strongest on-quarter growth in two years


The Bureau of Economic Analysis revised up US growth data by 40 basis points (bps) to 3% (not annualized). This marksthe strongest GDP growth since the first quarter (Q1) of 2015. S&P Global expects the economy to grow at 2.2% in 2017and 2.3% in 2018, compared with 1.6% in 2016. While Q2 GDP appears solid, the same cannot be said about the ongoingQ3. Trade deficit in goods and services widened $2.4 billion on-year (and 0.1 billion on-month) in July to $43.7billion. Exports expanded 4.9% on-year (down 0.3% on-month), while imports grew 5.1% on-year (falling 0.2%). Theeconomy added a tepid 156,000 non-farm jobs in August.


The annual CPI-linked inflation rose 1.9% in August, up from 1.7% in July, on the back of rising gasoline prices. Theenergy index shot up 6.4%, while the food index inched up 1.1%. Core inflation was 1.7%, for the fourth month in a row,led by the rise in motor vehicle insurance, shelter and medical care prices.


The dollar index weakened an average 1.2% on-month in August. Rising tensions between the US and North Korea, theexit of Carl Icahn as a special adviser on regulations, removal of White House chief strategist Steve Bannon, andPresident’s Trump’s declaration regarding government shutdown given the failure in receiving funds for the USMexicoborder wall, dampened investor sentiment, leaving the dollar weak.