Globally, a rosier outlook for world economies - HSBC

James Pomeroy, Global Economist at HSBC, explains that globally, the recent data have improved and some challenges to growth have dissipated which suggests that fewer countries are showing signs of vulnerability.

Key Quotes

“After a few months of better global economic data, it’s easy to feel more optimistic about the world economy in the short term. Equally, many of the longer-term risks are also dissipating, and so surprisingly few countries now show as risks within our macro health check framework. Having flagged 13 countries in our last edition, we are now concerned about just four.”

“Some countries are showing more pressing concerns in terms of underlying stability – notably, Norway and, to an extent, China. In both cases house price growth is high and accelerating alongside strong credit growth that may not be sustainable, but, in China’s case, policy has already responded. However, both of these economies have reasonably sound macroeconomic fundamentals, and score reasonably well in the other categories we look at.” 

“Two of the countries that most concerned us in our latest quarterly publications – South Africa and Turkey – are still concerns. Turkey’s twin deficits remain a problem, while, in both countries, the data are improving but the political situations may end up holding back future growth.”

“While we must caution against becoming too complacent, there has clearly been an improvement in a lot of underlying data in the past six months. The UK’s problematic current account deficit halved in Q4 2016, some of the financial stability concerns have softened in Sweden and Canada, and Brazil and Russia may have emerged from recession. Even the two countries where we recently cut our growth forecasts, Saudi Arabia and Chile, do not appear to be showing any new signs of cracks, with these downgrades resulting from one-off shocks rather than a gloomier economic outlook.”

“Of course, challenges remain. Debt is high in many countries – either on the government side (which may limit the scope for fiscal support) or on the private side (which could constrain future borrowing or amplify any slowdown). House price growth in some countries appears unsustainable and structural factors such as demographics may constrain future potential. But, at least for now, things are looking noticeably better.”