INSIGHT

STRONG GROWTH, STEADY INFLATION
INSIGHT

February 2018

STRONG GROWTH, STEADY INFLATION

By Celestee Tan

Key Takeaways

  • Citi analysts maintain their forecast of above-consensus global real GDP growth of 3.4 per cent for 2018 and steady inflation of 2.5 per cent, as global growth continues broadly across economies and sectors.
  • Inflation remains subdued across Developed Markets (DMs), particularly outside of the US.
  • Downside risks to growth include faster-than-expected tightening of monetary policy across DMs, rising protectionism and trade war threats, heightened political risks and a China and/or US slowdown.
Economic Growth & Inflation Forecasts

Although growth is slowing as the economic cycle matures, Citi analysts emphasize that this is not the start of a downturn.

Citi maintains a forecast of above-consensus global real GDP growth of 3.4 per cent for 2018 and steady inflation of 2.5 per cent as global growth continues broadly across economies and sectors.

Global growth is expected to be supported:

  • US: Additional fiscal stimulus during the next two years from the passage of the Bipartisan Budget Act of 2018 as well as from the 2017 US Tax Reform.
  • Europe: Domestic oriented sectors outperforming and economic activity expanding to narrow output gap.
  • Japan: Uptrend in exports, continued recovery in business investment and 2020 Tokyo Olympics.
  • China: China’s trade connections to the world and domestic economic strength suggest it could endure through US trade threats. The government has expressed commitment to open markets.
  • Emerging Markets (EMs): Strengthening EM macro fundamentals and solid domestic economic growth.

Global growth may peak in 2018 with risks to outlook:

  • Faster-than-expected tightening of monetary policy across Developed Markets.
  • Rising protectionism and trade war threats.
  • Heightened political risks.
  • China and/or US slowdown.

Inflation remains mostly subdued across DMs, particularly outside of the US. Citi's global inflation forecasts remain unchanged for 2018 at 2.5 per cent. In DMs, Citi analysts continue to expect below-consensus 1.8 per cent inflation in 2018. In EMs, Citi analysts forecast slightly increased inflation in 2018 of 3.5 per cent (+0.1 percentage point).

Upside risks to inflation include:

  • Unexpected rises in oil prices.
  • Higher-than-expected DM wage growth.

Celeste is a Singapore-based investment specialist with Citi

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