The world economy is enjoying a period of strong economic growth. It is not growing as quickly as it did between 2003 and 2007, but, in view of how that surge ended, we should be grateful for that mercy. Both growth in 2017 and the growth forecast by the IMF for 2018 and 2019 are higher than in any year since the crisis, except for 2010 and 2011, the years of post-crisis recovery. This, then, is a time of fragile recovery.
In its latest World Economic Outlook, the IMF has raised its forecast for growth of the world economy for this year and next by 0.2 percentage points above its forecast in October 2017. The big upgrade is for the advanced economies, up by 0.5 and 0.4 percentage points in 2018 and 2019, respectively. The UK is the only member of the group of seven leading countries to enjoy no upgrade. That is Brexit’s early price. Perhaps most striking given protectionist noises from the US, are upgrades in the expected growth of the volume of world trade. This is now forecast to grow 1.1 percentage points faster in 2018 and 0.8 percentage points faster in 2019.
The two main reasons for the strength of the world economy and rising optimism about short-term prospects are that policy remains highly supportive, while the world has avoided any large negative economic shocks since the collapse of commodity prices in 2014 and 2015. Markets expect policy rates to rise more sharply in the US than in October. Even so, monetary policy would not be tight by historical standards: the expected policy rate is below 3 per cent even in early 2021. This optimism is largely because inflation, notably wage inflation, has been quiescent, despite low unemployment. Other high-income economies are far behind the US in their tightening.