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December 29, 2017

Global Economy: Growth's on the up, mostly

  • United States (US) growth for third quarter (Q3) of 2017 revised up by 30 basispoints (bps) to 3.3% on-quarter
  • Revised growth numbers put Japan on a solid growth track with 2.9% onquartergrowth in Q2 and 2.5% in Q3 2017
  • Service and construction activity picks up in China as indicated by the officialnon-manufacturing Purchasing Manager’s Index (PMI), which grew 54.8% inNovember
  • Brent crude prices rise to $62.7 per barrel (bbl) on average in November,gaining 9.1% on-month

Good times seem to have finally returned, notwithstanding lingering risks to theworld economy. According to the World Bank, global growth continued to be solidand broad-based in Q3 2017 at 3.4% on-quarter, despite the slight moderationfrom the previous quarter's particularly strong performance (3.6% on-quarter).Among the major economies, growth accelerated in the US and United Kingdom(UK) and moderated in the euro area (EA), China and Japan. Even more positive isthat the World Bank expects the synchronized global recovery to continue in Q4.


Solid growth and employment data turns the spotlight back on US


The economy posted a three-year high of 3.3% on-quarter (earlier 3%) in Q3 2017, driven by personal consumptionexpenditure, private inventory investment, non-residential fixed investment, and net exports. While growth andemployment remained solid, trade deficit widened in October to $48.7 billion compared with $43.1 billion a year ago asimports grew faster (7%) than exports (5.6%). Annual consumer price index (CPI)-linked inflation rose 2% in October,compared with 2.2% in September. Core inflation (CPI excluding food and energy) rose 1.8% after recording 1.7%increase in the preceding five months.


The Federal Open Market Committee (FOMC) in its December meeting raised the target range for federal funds rate by25 bps to 1.25%-1.50%. The FOMC maintained its accommodative stance in order to support the strengthening labormarket conditions and enable a sustained return to the target 2% inflation in the medium term. S&P Global expects theFOMC to raise the federal funds rate thrice in 2018 by 25 bps. Dollar index gained 0.2% on-month on average inNovember as investors cheered improving growth and employment. Appointment of Federal Reserve Governor JeromePowell as the new chairperson of the US Fed and the unveiling of tax reforms by House Republicans in Washington alsohelped the greenback.