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March 29, 2018

Global Economy: Major economies post above-trend growth in 2017

  • The United States (US) economy adds 313,000 non-farm jobs in February, the strongest number since July 2016
  • China’s exports grow by a whopping 44.5% in February, beating market expectations
  • Crude oil prices ease to $65.3/barrel (bbl) average in February from $69.1/bbl a month ago

Global growth engine has been revving up for some time, with inflation still staying benign. The US, euro area and Japan posted solid above-trend growth in 2017, expanding at 2.7%, 2.3% and 1.7%, respectively. China, now the world’s second largest economy and largest contributor to global gross domestic product (GDP), grew by a robust 6.9%. The International Monetary Fund expects global growth to be solid at 3.9% in 2018 as the synchronized upturn in the advanced economies continues. However, inflation remains at or below target in most of the advanced economies, reflecting the lingering confidence effects from the global financial crisis as well as tepid wage growth despite apparently tight labor markets. However, the expectations of a faster-than-expected pick-up in inflation have gained traction in recent months as employment data of the major economies suggest further tightening of labor markets, which could push up wages.


Strongest non-farm job gains in US since July 2016


US GDP growth for Q4 of 2017 was revised down to 2.5% (earlier 2.6%) on-quarter, lower compared with 3.2% growth in Q3. The deceleration was on account of a downturn in private inventory investment and net exports, which was partially offset by acceleration in private consumption expenditure, government spending and fixed investment.


Trade deficit widened by $7.9 billion on-year in January to $56.6 billion as imports growth (7.4%) outpaced exports (5.1%). The economy added 313,000 non-farm jobs in January with broad-based employment gains. This is the strongest number posted since July 2016. The unemployment rate stayed low at 4.1% for the fifth consecutive month.


Annual Consumer Price Index (CPI)-linked inflation stood at 2.1% in January 2018, stable from December 2017, led by a sharp spike in fuel prices. Core inflation (CPI excluding food and energy) was also steady at 1.8%. The dollar index inched up 0.3% on-month on average in February. However, further gains were capped due to increased perception of inflation risk in the US after the January employment data showed stronger-than-expected non-farm job gains.