Sustained economic growth seen in 2018 with further upside potential in equities

AFTER a year of strong investment returns on risk assets, 2018 is likely to see sustained economic growth and robust - albeit more limited - returns. Economic growth is expected to remain strong in the months ahead, supported by advanced and emerging markets. This continued strength implies a low risk of a global recession.

Global gross domestic product (GDP) growth should accelerate slightly to a pace of 3.8 per cent, driven mainly by the United States, the eurozone, China and India. Global inflation is forecast to reach a benign 2.7 per cent. Tax cuts and some fiscal easing in the United States and Germany, in particular, should also fuel growth. Global trade is likely to accelerate, outweighing protectionist tendencies.

The US Federal Reserve embarked on a programme of balance sheet reduction in October 2017. The European Central Bank (ECB) and others are set to wind down asset purchases in 2018. In late 2018, the cumulated balance sheets of the major central banks will thus begin to shrink. In the course of 2018, a number of major central banks are also likely to join the Fed in raising interest rates. In emerging markets, the phase of policy easing is nearing its end. Overall, global monetary policy will thus clearly turn less accommodative.