Global
Economic
Outlook
2nd Quarter 2017
Global Economic Outlook
Introduction|2
By Ira Kalish
In this issue of the
Global Economic Outlook
, our
far-fung economists examine the state of the world
economy—specifcally the United States, Eurozone,
China, Japan, India, Canada, Brazil, Russia, Africa,
and global infation.
United States: Wage growth
evident, but productivity
growth still missing|6
By Patricia Buckley
With unemployment at low levels, American work-
ers are experiencing the highest average real wage
increases since the recession, although the gains are
uneven across industries. Continued increases will
likely require a pickup in productivity.
Eurozone: Accelerating
recovery in a risky
environment|12
By Alexander Brsch
The economic situation in the Eurozone appears
paradoxical, with continued political risks squaring
of against an accelerating economic recovery. The
question is whether the decoupling of economics
and political risks can continue.
China: Changing drivers for
competitiveness|18
By Ira Kalish
China’s economic growth appears to be stabilizing,
but the economy continues to derive its growth
from the same sources as before: infrastructure
and property investment. Changes in global trade
agreements, wages, and demographics might afect
the economy.
Japan: Brexit and its
impact|22
By Ira Kalish
Prime Minster Shinzo Abe’s reforms seem
to have put Japan’s economy on the track
to recovery, with exports, employment, and
infation fgures looking rosier. However,
Japanese manufacturing and fnancial services
companies operating in the United Kingdom
could face some discomfort due to Brexit.
India: Moving beyond
demonetization into a new
fscal year|26
By Rumki Majumdar
Despite global uncertainty and demonetization,
India’s growth remained buoyant for three-fourths
of last year. Looking ahead, strong economic fun-
damentals, improving prospects for faster reforms,
and growing digitization bode well for business
optimism and economic activity.
Russia: Signs of
recovery|34
By Lester Gunnion
With oil prices rebounding, the ruble regaining
some of its lost value, and infation falling sharply,
Russia’s economy seems to be on the road to recov-
ery. However, conservative monetary policy and fs-
cal consolidation are likely to keep growth subdued.
Brazil: BCB seizes the
initiative|40
By Akrur Barua
Dubbed a key driver of global growth only a few
years ago, Brazil has since faced a staggering rever-
sal of fortune. Encouragingly, the central bank has
come to the rescue, even as the government tries to
get public fnances back to health.
Global Economic Outlook
CONTENTS
II
2nd Quarter 2017
Canada: Free trade and the
United States|48
By Daniel Bachman
Canadians may have thought that the long-standing
debate over free trade with the United States was
over. But the United States might reopen this issue,
which dominated Canadian political debate for
much of its history.
Africa: How business needs
to plan for the changing
continent|54
By Martyn Davies and Hannah Edinger
Earlier, positive sentiment in global markets and
strong demand for resources helped write the nar-
rative of “Africa rising.” However, the continent is
so diverse that it has always been simplistic to have
a single view of it, making a more nuanced view of a
multispeed Africa more appropriate.
Global infation: Not
yet a worry for most
policymakers|64
By Akrur Barua
Infation around the world is edging up, but
is it time for central banks to lose sleep
over it Not yet, according to our analysis.
While Japan and the Eurozone are not
out of the defationary woods yet, key
Asian economies have to worry more
about household debt than infation.
Economic indices|72
Additional resources|75
About the authors|76
Contact information|77
Illustrations by Stephanie Dalton Cowan
Contents
III
Global Economic Outlook
Introduction
By Ira Kalish
T
HE second quarter of 2017 begins with consid-
erable political risk in the world. Elections in
Europe, confict in the Middle East, tensions
on the Korean peninsula, and uncertainty about
trade policy in the United States have led to a high
degree of fnancial market volatility. And yet the
relatively benign state of the global economy sug-
gests that there needn’t be too much worry. Growth
has improved in the United States, Europe, Japan,
and many emerging countries. China’s economy is
no longer decelerating. In this issue of
Global Eco-
nomic Outlook
, our far-fung economists examine
the state of the world economy, looking at both eco-
nomic and political issues and the manner in which
they interact.
First, Patricia Buckley notes that, in the United
States, a tight labor market is generating the big-
gest wage gains since the last recession. Yet she
also notes that unless productivity growth picks up,
wage gains will probably lead to an acceleration in
infation. Finally, she discusses the kinds of policies
that might boost productivity growth, including in-
frastructure investment, tax reform, and deregula-
tion.
Next, Alexander Brsch looks at the paradox of the
Eurozone, where economic growth is accelerating
but political risk remains high. He wonders how
long the two can go hand in hand. He notes that ris-
ing risks have not been noticeable in the behavior of
fnancial markets, which continue to dwell on better
growth, rising employment, and the disappearance
of defation. On the other hand, political risks can-
not be ignored. The main ones involve Brexit and
the rise of populist parties in the Eurozone.
Third, I examine the Chinese economy, which is
growing at a favorable pace and appears to be stabi-
lizing after a period of deceleration. Yet the problem
remains that too much of that growth stems from
investments, many of which are not generating
positive returns and pose a risk, given the rapid rise
of debt. In addition, I look at China’s labor market
competitiveness as well as shifting demograph-
ics, both of which will play a role in China’s future
growth.
Fourth, I look at the Japanese economy, which ap-
pears to be doing better. Exports, in particular, are
playing a role in reviving growth, especially given
the suppressed value of the yen. Yet domestic de-
mand continues to be weak. Moreover, Japanese
business is worried that, having invested heavily in
the United Kingdom as a gateway to Europe, Brexit
now poses a sizable risk to that investment.
Next, Rumki Majumdar looks at the Indian econo-
my, which is lately doing considerably better than
anyone expected. Expectations were low due to the
recent demonetization, which many analysts be-
lieved set the economy back—yet it is now growing2nd Quarter 2017
at a breakneck pace. Rumki says that this refects
favorable monetary and fscal policy responses to
the monetary crisis. She also believes that the de-
monetization sets the stage for the digitization of
the Indian economy.
Russia’s economy is the topic of Lester Gunnion’s
article. Lester notes that Russia is doing much bet-
ter than a year ago, largely due to external factors.
Oil prices are up, not only boosting revenue but
helping to stabilize the ruble. That, in turn, has al-
lowed an easing of monetary policy. On the other
hand, continued economic sanctions will stymie
growth. Moreover, excessive dependence on ex-
ports of hydrocarbons poses a continued risk to the
Russian economy.
In his article on Brazil, Akrur Barua says that Bra-
zil has faced “a staggering rev