A Look at the Global Economy: Putting The United States and The Eurozone Into Focus

The global economy is estimated to have grown at 3.6 percent during the second quarter of 2018 according to stats by World Bank.

Global growth is projected to stabilize at 3.1 percent in 2018, the same pace as what was witnessed in 2017, supported by firming investments in advanced economies, a continued recovery in the commodity-exporting emerging market and developing economies (EMDEs), and a robust growth in commodity-importing economies.

Global growth is projected to ease gradually over the next 2-years to 2.9 percent in 2020, as major Central Banks gradually depart from accommodative monetary policies that seek to stimulate growth by increasing the overall money supply in the economy.

The United States Of America

The US economy grew by 4.2 percent on a year-to-year in Q2’2018, compared to 2.2 percent in Q2’2017, making it the fastest growth rate in 4-years, attributable to strong gains in private consumption and capital spending.

According to the World Bank, growth in Q3’2018 remains robust despite the trade deficit widening, amid rising fiscal stimulus and a strengthening US Dollar.

The economy continued to add about 200,000 jobs per month while nominal wage growth reached 2.9 percent in August, its highest level since 2009.

The Chicago Purchasing Manager’s Index (PMI) fell to a 5-month low of 60.4 in September, down 3.2 percent points from 63.6 in August.

Consumer spending increased steadily in August, supporting expectations of solid economic growth in the third quarter, while a measure of underlying inflation remained within the Federal Reserve’s 2.0 percent target for a fourth straight month.

The annual GDP growth estimate for 2018 rose to 3.1 percent from 2.8 percent, according to the US Federal Reserve, with a projection of 2.5 percent in 2019, up from an earlier projection of 2.4 percent before slowing to 2.0 percent in 2020 and 1.8 percent in 2021.

The US Fed raised interest rates at its meeting on 26^th September 2018, by lifting the benchmark rate by 25 basis points to a range of 2.0 – 2.25 percent from 1.75 – 2.0 percent set in June 2018. The increase in rates was the third this year and the seventh in the last eight quarters, which has been observed at the end of the accommodative monetary policy era after the deep financial crisis.

Eurozone:

The European Central Bank (ECB) met on 13^th September 2018 and maintained the interest rate on the main refinancing operations at 0.00 percent and the interest rates on the marginal lending facility and the deposit facility at 0.25 percent and (0.40 percent) respectively.

The key ECB interest rates are expected to remain at their present levels through the summer of 2019 and thereafter, to ensure the continued convergence of inflation to levels that are below, but close to 2.0 percent over the medium term.

The Eurozone recorded a slow 0.4 percent growth in Q2’2018, compared to a growth of 1.5 percent in Q2’2017, down from an average of 2.7 percent in the last two quarters of 2017.

According to the September 2018 European Central Bank (ECB) macroeconomic projections, the Eurozone annual real GDP is projected to increase by 2.0 percent in 2018, 1.8 percent in 2019 and 1.7 percent in 2020.

This is a slight downward revision from the June 2018 projections, of 2.1 percent in 2018 and 1.9 percent in 2019, reflecting the impact of weakening global trade in leading world economies, compounded by the effect of the Euro’s past appreciation.

Inflation decreased to 2.0 percent in August 2018 from 2.1% in July, with ECB foreseeing a further decrease to 1.7 percent in the remainder of 2018, 2019 and 2020.

Underlying inflation is expected to pick up towards the end of the year and increase gradually over the medium term, supported by the ECB’s monetary policy measures, the continuing economic expansion, and rising wage growth.

The unemployment rate declined to 8.2 percent in July 2018 from 9.1 percent in July 2017, which is the lowest level observed since Q4’2008, attributable to strong economic growth.

The Euro Stoxx 600 gained by 1.3 percent in Q2’2018 but has however declined by 1.54% YTD. The index is currently on a declining trend, driven by a plunge in Italian bank equity prices, whose big sovereign bond portfolios make them sensitive to political risk. This was after the Italian Government significantly widened its budget-deficit target for 2019 to 2.4 percent of GDP, which is three times higher than the number that the previous government had planned.

For a deeper analysis, please visit and read Cytonn Q3’2018 Markets Review