It is generally accepted that the global economic recovery from the Great Recession (2008-09) has been unusually weak.

Nonetheless, economic circumstances noticeably improved in the second-half of 2016, and since then the world economy seems to have settled into a somewhat more historical pattern of 3% plus annual growth. Thus, in its October 2017 Economic Outlook, the IMF projected global real GDP to increase 3.6% in 2017 and 3.7% in 2018.

Indeed, for the first time in a very long time, the economies of virtually all major countries are synchronized into a pattern of either steady or improving growth.

The United States, Europe, and China are simultaneously experiencing strong economic growth for the first time since 2008. Also, in view of the elevated levels of unemployment in Europe, the tons of spare capacity in China, and persistent deflationary pressures from modern technologies, the danger of overheating in the advanced economies is quite remote for now. 

While there still are some serious legacy problems remaining because of the slow recovery from the Great Recession (low inflation, high unemployment, increased economic inequality), nonetheless among the advanced countries monetary policy is still very expansive and fiscal policy is also somewhat expansive, particularly considering the forthcoming U.S. tax cuts.

Within this slightly improving global outlook, the U.S. job market has continued to tighten, with the unemployment rate dropping to a 16-year low of 4.1% in October and November 2017. Moreover, U.S. labor force participation has begun to rise modestly, adding to the tightening job market. The Federal Reserve has already raised interest rates three times this year and has begun to gradually reduce the size of its balance sheet.

There still are some common problems facing the advanced economies. At the forefront of these is the fact that virtually everywhere wages continue to be depressed despite stronger economic growth. In addition, inflation in the advanced countries remains puzzlingly low despite stronger job markets.

Indeed, in the U.S. long-term bond yields have recently declined (i.e. the flattening of the yield curve) even though the Fed has made it abundantly clear that further interest rate hikes in 2018 are coming. This suggests that the financial markets are skeptical about the durability of the global economic recovery and the markets are certainly skeptical about inflation moving up to Fed’s 2% target range.

As for the major industrial economies, 2017 has been a pretty robust growth year. The U.S. economy is expected to expand 2.3% in 2017 and 2.7% in 2018. Canada’s economy surged by an estimated 3.1% in 2017 but is expected to slow to around 2.5% growth in 2018.

The euro area economies have also been a bit of a pleasant surprise, growing about 2% in 2017 and expected to expand a further 1.8% in 2018. Note that in the third quarter of 2017, the euro economy was expanding at a 2.5% annual growth rate.

China’s economy continues to defy the prophecies of an abrupt slowdown as it transitions towards a more consumer-oriented economy. China’s economy is expected to record about 6.7% growth in 2017 and 6.5% growth next year.

 India’s economy has passed through a brief rough patch but is projected to increase by 7% in 2018.

The outlook for the British economy has clearly worsened because of the Brexit decision which has already increased the rate of inflation and reduced business and consumer spending. We expect the British economy to grow only about 1.2% in 2018, far slower than the 1.8% growth in the euro area.