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November 23, 2017

Global Economy: The helicopter's set to land

  • Despite the disruptions caused by hurricanes Irma and Harvey, the United States (US) economyposted a solid 3% expansion in the third quarter (Q3) of 2017
  • The Bank of England (BoE) hiked its policy rate by 25 basis points (bps) for the first time since 2007
  • Slowdown in real estate and construction activity softened China’s growth in Q3 2017 to 6.8% on-year
  • Energy prices soared for fourth consecutive month in October, led by a rise in crude oil prices

Underwritten by the monetary stimulus of central banks and buttressed by government policiesacross the world, the global economy has quietly turned around. Q3 augured well for majoreconomies, giving credence to the widespread conviction of an ongoing and sustainable globalrecovery. While growth moderated in the US, Euro area (EA), Japan and China to 3% on-quarter, 0.6%on-quarter, 1.4% on-quarter and 6.8% on-year, respectively, the United Kingdom (UK) posted adecent 0.4% on-quarter growth in Q3 2017. Potential pain points, real and imagined, remain, butcentral banks are moving towards unwinding of the quantitative and qualitative easing (QQE)program initiated post the global financial crisis. This may be the critical point in the growth story.Even as the US Fed has initiated its balance sheet normalization program and penciled another ratehike in December and three more in 2018, the BoE hiked its policy rate in November for the first timesince 2007. The European Central Bank (ECB) has taken a softer stance by reducing the pace of itsasset purchase program (starting January 2018), although extending the duration till September2018. The Bank of Japan (BoJ), however, kept policy rates unchanged and continued with its QQEprogram, keeping the 10-year government bond yield at 0%.


US economy braves stormy weather


Despite battling the headwinds of Hurricanes Irma and Harvey, the US economy posted a solid 3% growth in Q3 2017.The economy weathered negative contributions from residential fixed investment and state and local governmentspending, which were offset by positive contributions from personal consumption expenditure, private inventoryinvestment, federal government spending and net exports.


The economy witnessed 261,000 job gains (non-farm payroll) in October as employment in food services and drinkingplaces, professional and business services, manufacturing, and healthcare increased. In addition, the Bureau ofLabor Statistics corrected its September jobs gains to 18,000 from the previously reported job loss of 33,000.