This year has not yet ended, but we all know that nothing too important happens during the holiday. The financial world is mostly on vacation, volumes in the market are very low, and trading stocks takes a backseat for most people.
The decision-makers are also on vacation—the interest rate decision for this month has already been made, and tax reform talks will probably stagnate during the break.
So, we can now summarize the year that’s about to end.
So, how’s the world doing?
- GDP—The world economy is in the midst of a mini-boom, and most economies are growing at faster rates than they grew in 2016. The growth in GDP has accelerated lately, and the latest forecast of the International Monetary Fund for global growth is 3.6% for 2017 and 3.7% in 2018.
Almost all the major economies worldwide have accelerated their growth in 2017. The biggest economy, the American economy, is expected to grow this year in the range of 2.3%–2.5%, which is better than the 1.6% in 2016; the Chinese economy, the second-biggest economy, is expected to grow approximately the same: 6.6%–6.7%; and Japan’s economy, the third-biggest has accelerated its growth from 1% to 1.5%. Other G7 economies have also improved, e.g., France (1.6%, 1.2%), Italy (1.5%, 0.9%), and Canada (3%, 1.5%).
The main improvement in the global economic outlook, however, comes from a few notable developing economies that did extremely well in 2017, such as Turkey (5.1% in 2017, 3.2% in 2016), Brazil (0.7%–3.6%), and Russia (1.8%–0.2%).
Looking at regions, Europe increased its growth from 1.6% to 2.2%, Asia (5.3% to 5.5%), and the African market has improved significantly (2.1% to 3.5%).
- Unemployment—Unemployment in most countries is relatively low, and countries that had low unemployment in 2016 have usually kept those figures in 2017, while countries that suffered from high unemployment managed to lower the rates. Some notable examples are the recovering Southern European economies, including Spain, which is still suffering from a 17% unemployment rate, but at least the trend is down from 18.5% at the end of 2016, from above 20% in 2015, and 26% in 2013. Italy has an unemployment rate of 11.2% today compared with 11.8% at the end of 2016, and both Portugal and Greece have also shown impressive improvements. The most developed economies are in a state of record low unemployment: the United States with 4.4%, Germany with 3.6%, the UK with 4.2%, and Japan with 2.8%.
- Inflation—The record low unemployment was supposed to cause inflammatory pressures, but those are still being held in check. The current inflation rate for the United States is 2.2% for the 12 months ended September 2017, which is just above the middle point of the optimal range of the Federal Reserve (1%–3%). The inflation rate is higher than in previous years and definitely shows that while the economy is heated it is far from a catastrophe, and the Fed is slowly raising interest rates to moderate inflation. Other countries are starting to see inflation rates a bit lower, which forces their central banks to respond with their ultimate weapon of raising interest rates, but nothing is out of control, and inflation is not high enough to kill the Goldilocks Economy.
- Stock Market—Perhaps the biggest winner of all, stock markets worldwide had significant gains throughout the year. The American market has gained approximately 20% (and more than 20% in technology stocks), and the Japanese Nikkei is up 15% from its value at the end of 2016, which is quite similar to the German DAX. Maybe the most impressive rise came from the Hong Kong Hang Seng index, which rose by more than 30%.
- Cryptocurrencies—Just kidding. But you all know how they are doing this year. Bitcoin had a 2,000% return, but it depends on what day, hour, minute, and second you are checking.
2017 numbers are great, but . . .
As always, there is a but. This year has been better than almost anyone could have anticipated, but as time goes by, we seem to be one step closer to the end of this economic cycle. As interest rates are slowly rising, the state of the economy is not sustainable. It does not have to end catastrophically as was the case in 2008, but we cannot ignore such a possibility.
Unless we are on the verge of a new era where the economy can stay stable for a generation, empirical evidence indicates otherwise, showing that years of growth are usually followed by a recession. It certainly may not occur in 2018, but the celebration will not last forever.