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A Look Back at 2017

11 December 2017PoliticsEconomics
  • At the start of 2017, Citi analysts expected a rebound in global growth, a rebound in Developed Markets (DM) inflation and a modest increase in DM policy rates. All three of these forecasts have been validated.
  • Growth rebounds: At the start of 2017, Citi analysts had forecast global growth in 2017 at 2.7% with Developed Markets (DM) growth at 1.6% and Emerging Markets (EM) growth at 4.3%. Citi analysts currently expect global growth of 3.2% in 2017. This upside surprise has been broad-based, with upward revisions to both DM (to 2.2%) and EM (to 4.7%), and it is the first upside surprise for growth in six years. This is probably due to stronger momentum in investment, industrial activity and international trade.
  • But Inflation lags: Global headline inflation has undershot our initial forecasts for the sixth year in a row, despite the upside surprise to growth. Citi analysts 2017 global inflation forecast is now 2.4%, compared to 2.8% at the start of the year. Citi analysts current forecast for DM CPI is 0.2pp lower than at the start of 2017 (now 1.8%), and 0.4pp below for EM (now 3.6%). Lower oil prices and perhaps dollar weakness may have all played a role.

  • Modest increase in DM policy rates: On average, DM monetary policy rates are likely to end the year slightly higher than Citi analysts expectations at the start of the year. The Fed may probably hike three times in 2017, including an expected 25bp hike in December (25bp more than expected), the Bank of Canada (BoC) twice (50bp more than expected) and the Bank of England (BoE) once (25bp more), while the Reserve Bank of New Zealand (RBNZ) did not cut by 25bp, as Citi analysts had expected.

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