“The world’s most influential central bank has raised the target range for the fed funds rate three times in the last six months, it thinks another rate hike will be likely before the end of the year, it is projecting three more rate hikes in 2018, and it has revealed a plan to begin normalizing its balance sheet “relatively soon” if the economy evolves broadly as it anticipates.” (Patrick J. O’Hare, Briefing.com, June 2017)
Export Development Canada (the EDC) regularly reviews the global economies with an emphasis on the advanced and emerging market countries and commodity markets. The EDC’s latest global projections resemble forecasts published by the IMF, the EU, the Bank of Canada and the OECD. Several features in the EDC’s latest projections should prove interesting to investors and policy wonks.
In recent years the world economy has been very weak and global real GDP expanded only 3.1% in 2016. The 3.8% projection of world growth for 2018 represents the strongest expansion in five years.
The advanced economies are expected to record only minimal improvements in growth rates next year, while the emerging market countries are expected to record stronger gains.
Indeed, GDP growth for the advanced economies is expected average about 2% in both 2017 and 2018 compared with 1.6% growth in 2016. Growth in the emerging market economies is expected to progress from 4.1% in 2016 to 5% by 2018.
Commodity prices are forecast to increase a bit this year and next, even including crude oil and natural gas prices. This latter conclusion may seem counter intuitive, given the current weak market for crude oil, largely because of over supply problems.
Nonetheless, the improving outlook for the emerging market economies is largely explained by stronger demand for their exports as well as the likelihood of higher average commodity prices.
Within the commodity markets, precious metal prices dominated by gold are expected to remain roughly stable at current levels in 2018. The EDC also projects that the Canadian dollar will continue to remain quite competitive (i.e. weak), averaging about 76 cents U.S. this year and 78 cents in 2018.
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