TORONTO, July 6, 2017 /CNW/ - Global momentum remains strong despite occasionally weak data in some countries. The focus is now on determining which central banks will follow the Federal Reserve and tighten interest rates: the Bank of Canada is nearly certain to move, potentially followed by the Bank of England and the European Central Bank (ECB). The withdrawal of monetary stimulus, when it occurs, is likely to be of material consequence to financial markets. Although there is the possibility of increased volatility as markets digest the potential for reduced central bank support, this shift in stance by central bankers is very good news as it signals that the economic recovery is now self-sustaining and far less reliant on exceptional policy support.
Other threats to the outlook are mixed. "It now appears clear that the United States will seek to modernize NAFTA instead of ripping it up," said Jean-François Perrault, Senior Vice President and Chief Economist at Scotiabank. "However, the U.S. is now also considering tariffs on imported steel by applying a national security designation to the sector. If enacted, these tariffs would have the potential to trigger significant retaliatory actions that could develop into a trade war."
Highlights of Scotiabank's Global Outlook include:
- Canada: GDP growth stormed ahead to an unexpectedly quick pace of 3.7% q/q in Q1. Growth is projected to reach 2.7% in 2017, which is roughly double the Bank of Canada's estimate of potential and would be the highest since 2011. Forecast growth of 1.9% for 2018 reflects an expected shift in economic activity to a more durable mix of sources in the years ahead;
- United States: The U.S. economy heads into the eighth year of what is now its third-longest expansion. Growth is forecast at 2.2% in 2017 and 2018;
- Mexico: Progress on the NAFTA negotiations and the 2018 elections will together have a disproportionate impact on economic developments;
- United Kingdom: The outlook has softened since earlier in the year. Q1 GDP was much weaker than expected (at just 0.2% q/q) and forward-looking indicators imply that growth is unlikely to be any better over the remainder of the year;
- Latin America: 2017 is forecast to be a challenging year for the LatAm region as its countries' economies are likely to be heavily affected by politics; and
- China: China's economy is showing early signs that growth is decelerating again after a period of stimulus-induced strength. Output is expected to expand by 6.6% in 2017, and real GDP is expected to advance by 6.1% y/y in 2018.
Read Scotiabank's Global Outlook online at:
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