Supply surprise is a ‘nice’ reprise

摘要

This year advanced economies have enjoyed a rare positive supply surprise: output is higher than expected and inflation is lower. The initial China-related boost not only proved to be a great antidote to secularly weak global demand, but it has also engendered unexpected global momentum and a benign inflation response. As a result, 2016-17 resembles a mini-reprise of the “nice” 1990s, a non-inflationary, consistently expansionary decade. The global momentum has been propelled by a strong international trade multiplier. This has contributed to strength in several advanced economies, particularly the Eurozone. We expect global growth in 2018 to be bolstered by US fiscal stimulus as the impulse from China fades. It will remain “nice” in 2018, albeit in the context of weak secular trend growth. We expect the benign output-inflation trade-off to continue. Several of the factors that are underpinning low inflation and unemployment as well as weak wage growth are likely to be present for some time.