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Global Economic Outlook – key insights for 2018

WRITTEN BYJames Price | JPAbusiness

It’s been nine years since the global financial crisis (GFC) and the global economic outlook has finally started to improve, with the upswing expected to continue into 2018.

In short:

  • global growth has recovered
  • demand remains robust
  • financial markets are buoyant
  • risks are balanced in the near term
  • confidence and market sentiment remain strong.

However, there are structural challenges ahead such as persistent low inflation and productivity growth, as well as aging and – in some countries – diminishing workforces.

Economic trends abound with shifting ground, as we are in a digital age where pervasive technological advancements are disrupting markets, economies and business models.

Key insights for 2018

From a global market perspective, our key insights for the year ahead are:

  • broad-based economic growth (recovery and growth in advanced, emerging and developing economies)
  • emerging and developing economies are growing at a more rapid pace than advanced economies (particularly China)
  • persistent low inflation and productivity growth in advanced economies
  • structural challenges ahead for mid-term economic growth with aging and diminishing workforces.

Size and growth of the global economy

The size of the global economy is over US$70 trillion.

Australia is a relatively small contributor, being worth ~US$1.3 trillion and accounting for only about 1.6% of the global economy.

2016 Global GDP

Figure 1: 2016 Global GDP bar graph
Source: World Bank statistics

Australia maintains global GDP contribution

The Australian economy has remained relatively static as a percentage contribution to world GDP from 1990–2016.

Interestingly, during the global financial crisis of 2007–2008, most advanced economies saw decreases in relative contribution to global GDP. While these economies declined in relative contribution to global GDP in 2008–2009, Australia maintained its weight.

Outlook improving for US and China

Looking forward, China and the US’s relative contributions to global GDP are showing signs of growth and improvement – China’s relative global GDP contribution is increasing at a rapid pace (as seen in 2010–2016 figures).

During the same time, the Euro region and Japan are showing continual decline in relative contribution to world GDP.

1990–2016 GDP | JPAbusiness

Figure 2: 1990–2016 GDP figures
Source: World Bank statistics and JPAbusiness research

World economic growth, as measured by GDP, is estimated to increase from 3.2 per cent in 2016 to 3.6 per cent in 2017 and 3.7 per cent in 2018.

The two primary groups contributing to this forecast are ‘Advanced Economies’ and ‘Emerging and Developing Economies’.

Global economic growth | JPAbusiness

Figure 3: Global economic growth snapshot
Source: IMF

Outlook for Advanced Economies

Advanced Economies include:

  • United States
  • Germany
  • France
  • Italy
  • Spain
  • Japan
  • United Kingdom
  • Canada
  • Australia.

The Advanced Economies group is forecast to grow at a moderated pace in 2017 and 2018, at 2.2% and 2.1% respectively.

This moderated growth is due to lower projected US growth, under the assumption of neutral fiscal policy (not the previous expansionary policy expectations), offsetting higher projected growth in the Euro region.

Outlook for Emerging Markets and Developing Economies

Emerging Markets and Developing Economies include:

  • Russia
  • China
  • India
  • Indonesia
  • Malaysia
  • Philippines
  • Thailand
  • Vietnam.

The forecast is for relatively strong growth, from an upwardly revised 4.3 per cent in 2016 to 4.6 per cent in 2017 and 4.9 per cent in 2018.

This growth forecast primarily reflects stronger projected activity in China and in emerging European economies for 2017 and 2018.

Short-term opportunities, mid-term risks

In the short-term, global economic growth is gaining momentum and is broad based.

However, strong and sustained medium-term growth is far from secured.

Structural headwinds such as broad-based low inflation and weak wages and productivity growth in many economies – both advanced and developing – pose a risk to mid-term growth.

Global economic snapshots

Chinese economy

Driverschina-economy | JPAbusiness

  • Expansionary policy undertaken by Chinese government to maintain targets of doubling real GDP between 2010 and 2020.


  • Increasing public and private debt.
  • Financial sector vulnerabilities.
  • Increased protectionist policies in advanced economies may lead to restriction on global trade and have possible spill-over effects.

Key trends

  • Rebalancing of the economy from industry to services and from exports to domestic sources of demand continuing.
  • Rising standards of living – more people shifting into middle class resulting in an increasingly consumption-based economy rather than export based.
  • Increasing environmental focus – reducing steel production in many cities which will consequently lower demand for iron.
  • Increasing public and private debt – strong government expenditure and credit growth outpacing nominal GDP growth. 

Other Emerging Markets and Developing Economies


  • India – strong government spending is driving the growth of the Indian economy.
  • Association of South East Asian Nations – stronger than expected external demand from China and Europe.
  • Capital inflows at favourable borrowing rates.


  • Disruption in the financial systems in India due to recent currency exchange initiative.
  • Launch of a national goods and services tax in India.
  • Sudden or sharp increases in the interest rate may lead to risks of balance of payments reversals.

Japans-economy | JPAbusiness

Japanese economy


  • Strengthening external global demand.
  • Policy actions to sustain an accommodative fiscal stance i.e. expansionary policies to stimulate the economy. Accommodative monetary policy by Bank of Japan i.e. low interest rates.
  • Tokyo Olympics 2020 – increasing demand from capital expenditure.


  • Shrinking labour force – puts downward pressure on Japanese total GDP, however GDP per capita is expected to remain at current level.

Key trends

  • Structural headwinds – aging and shrinking working population resulting in potentially reduced overall GDP output in the medium to long term.
  • Business investment gaining momentum as reflective of a shift to increasing demand for domestic machinery orders.

US economy

DriversThe-US-economy  | JPAbusiness

  • Supportive financial conditions as well as strong business and consumer confidence are driving growth.
  • Pick-up in private investment.
  • Labour market conditions improving.
  • Prospect of corporate tax cuts.


  • Fiscal policy uncertainty – unchanged fiscal policies have resulted in downward revisions in the growth prospects of the US from previous forecasts.
  • Productivity and workforce diminishing – sluggish productivity growth, while the US workforce is experiencing diminished growth due to population aging.

Key trends

  • Strengthening inflation and employment rates, however there is weak productivity growth and fiscal uncertainty.
  • Economic slack remains, as reflected in underemployment and unused capacity in manufacturing above levels of earlier cyclical peaks. However, slack is diminishing and the unemployment rate is close to its estimated long-run equilibrium.
  • Closing output gap in the US economy, which is anticipated to be positive in 2019. (‘Output gap’ is the gap between a country’s current output in terms of GDP and its long-run potential output. Being ‘positive’ would mean the economy was producing above its potential, which would lead to higher inflation, wages, dollar, economy, etc.)

Advanced European economies

DriversEuropean-Economy | JPAbusiness

  • Pick-up in global trade – exports from Europe are accelerating.
  • Accommodative financial conditions i.e. loose, easy monetary policy and low interest rates providing cheap money and accommodative financial conditions for expansion, for countries and firms alike.
  • Diminishing political risk and policy uncertainty.


  • Weak productivity growth.
  • Public and private debt overhang in some economies.

Key trends

  • Increasing private and consumer confidence.
  • Reducing unemployment rates.
  • Low core inflation rate and expectations – below the European Central Bank targets.

Global commodities outlook


  • Oil production cuts expected to continue to March 2018. However, oil prices are anticipated to remain relatively low due to stronger than expected oil production in countries exempt from OECD oil production cuts – US shale oil production and production recoveries in Libya and Nigeria.


  • Cutbacks in coal production in China, as well as sporadic labour disputes in coal mines in Australia, have put upward pressure on coal prices. Continued policy-driven expansion in China expected to keep coal prices buoyant.


  • Iron ore
    • Iron ore prices forecast to slow in 2018 with China reducing steel production in line with environmental targets.
  • Gold 
    • Gold prices under pressure due to anticipated December US interest rate hike and as a reaction to increasing global real interest rates.
    • Short-term, broad-based global economic recovery reduces demand for gold in western economies, leaving a gap in the demand side and leading to further price pressures.
    • Medium- and long-term financial, economic and geopolitical risks result in a bullish outlook for gold in the long-term.

Agricultural commodities

  • Global commodity market conditions, as well as macro-economic and policy developments, likely to influence agricultural price trends in the medium term.
  • Population growth in developing countries is the dominant driver of global food consumption growth. The world’s population is projected to rise from 7.4 billion in 2016 to 8.1 billion in 2025, with 95% of this increase occurring in developing countries.
  • Along with global supply and demand, trade of agricultural commodities is expected to expand at a slower pace than in the previous decade. This slowdown in growth is broad based (from wheat to meat). The main driver of the moderated growth is primarily due to a slowdown in emerging economies.
  • Protectionist policies in some emerging markets to target ‘self-sufficiency’ objectives (i.e. China and India), weigh down generally on agricultural commodity trade growth.
  • Unless significant adverse environmental or other conditions occur:
    • a combination of rebuilt global stocks and sluggish demand is likely to keep prices for rice, wheat and other coarse grains under pressure in the short-term
    • sugar prices are expected to remain stable, with global production projected to meet the growing demand in developing countries
    • meat prices are likely to decline in the short-term as producers respond to lower feed grain prices.

Meet the authors

This Global Economic Outlook has been prepared by JPAbusiness Phillip James.jpgbusiness analysts Phillip James and Alex Dzang.

Phillip and Alex provide JPAbusiness and its clients with financial and business analysis, research and support services across a range of client requirements and in-house projects.

Prior to joining JPAbusiness, Phillip (pictured above left) studied at the University of Canterbury, Alex Dzang.jpgNew Zealand, where he graduated with a Bachelor of Commerce, majoring in Economics and Finance.

Alex (pictured right) holds a Bachelor of Business and Commerce, with a major in Accounting, from Western Sydney University.

Alex previously worked in accountancy firms in the Sydney CBD and brings an energetic and passionate approach to assisting clients with growth and exit strategies.