Global upturn broadens-out to cover more countries and stronger investment - NAB

Analysts at NAB expect the global upturn to continue with above trend growth continuing into 2018 and the risks look skewed toward getting better rather than worse growth outcomes. 

Key Quotes

“This is the best global backdrop for Australia we have seen for years.  Economic growth has ramped up to an above trend level, business confidence is high and measures of financial market volatility, risk spreads and policy uncertainty (a proxy for the political risk that weighed so heavily on markets last year) are well down from earlier highs.” 

“While this growth phase has been under way for years now, economic expansions do not just die of old age – they need a trigger to stop them.  In the past a common trigger ending economic upturns has  been central bank rate rises designed to curb rising inflation  - but that is not an issue this time with central banks trying to engineer higher rather than lower inflation.  Similarly, there does not seem much appetite for budget austerity around the world, removing another trigger.  Commodity markets look amply supplied, limiting the chances of commodity shock like the 1970s OPEC ones and global regulators have stepped up their oversight of financial systems, reducing the chances of another 2007/8 style financial crisis.”

“As always, there are risks – political problems from Euro-zone elections (it is Italy’s turn next year), increased risk taken on by investors seeking returns in a low yield world, the chance that central banks (especially the Fed) could be too quick to cut off their support for economic growth by lifting rates or winding back asset purchases too aggressively and the backdrop of high debt that households, corporates and governments carry in different parts of the world. While all these risks exist, they are so much discussed by markets and economic agents that there is a good chance we can avoid taking steps that would trigger problems – allowing the global upturn to roll on through the next few years.”