The global economy will expand 3.2% in 2018, matching the rate of growth achieved in 2017 and marking the first time since 2011 that global growth topped 3 percent, according to an annual forecast released Thursday by business information provider IHS Markit.
“The global economy finally broke through the doldrums in 2017 and the stage is set for continued solid growth in 2018,” said Nariman Behravesh, chief economist at IHS Markit. “We expect continuing expansion in the U.S. and emerging markets to offset plateauing in the Eurozone and Japan. While economic risks remain, most are low-level threats to the overall picture for 2018.”
The global growth forecast is No. 1 in Behravesh’s annual Top 10 Economic Predictions that were also announced Thursday. Here are the rest:
2. Strong economic momentum in the U.S. will carry over into 2018 and IHS Markit forecasts the world’s largest economy will grow 2.6% next year, up from 2.3% in 2017 and well above the 1.5% growth in 2016. Economic fundamentals and increasing employment in the U.S. will provide strong tailwinds for consumer spending, capital expenditures and housing, the forecast said.
3. In Europe, 2.4% growth in real gross domestic product outperformed expectations in 2017. Falling unemployment, a competitive euro helping exports and a supportive policy backdrop lead IHS Markit to forecast still solid 2.2% European growth in 2018. Non-performing loans in Italy and Spain and the risk of a “hard” Brexit are among threats to continued economic expansion in Europe. Economic growth in the U.K is expected to slow to 1.1% in 2018, from 1.5% for 2017.
4. IHS Markit predicts the price of Brent crude oil will average $56 in 2018, and with little upward pressure from oil, other commodity prices are likely to be range-bound, but volatile. Geopolitical risks could change the landscape, but continued strength in U.S. crude production teamed with lower demand from China should keep a cap on prices.
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5. The economic growth rate in China will continue to decelerate from 6.8% in 2017 to 6.5% in 2018, primarily due to the fundamental problems of excess industrial capacity, debt overhang and a glut in housing.
[Read more about global economic outlooks: Global Outlooks: India’s Economy on the Rise, While China’s Growth Seen Slowing]
6. Japan’s economy will begin to level off after seven quarters of growth. Continued growth in Japanese exports, resilient domestic demand and infrastructure investment ahead of the 2020 Olympic Games contribute to the IHS Markit forecast of 1.2% growth in 2018.
7. Economic growth in emerging markets will improve from 4.7% in 2017 to 4.9% in 2018. In the IHS Markit forecast, emerging economies in Asia Pacific and Latin America will outperform “Emerging Europe” and Sub-Saharan Africa.
8. Inflation will remain below the 2 percent target of central banks.
9. The U.S. Federal Reserve will raise interest rates at least three times in 2018, IHS Markit predicts. Even more rate increases could take place if economic growth and unemployment trends couple with the passage of a large tax cut.
10, The risk of recession remains low. IHS Markit calls the risk of trade friction “uncomfortably high,” but forecasts a low chance of a significant trade war. Global expansion is currently strong and synchronized, so derailing global growth would require a large shock or black swan event.