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Economic Outlook | FALL 2017

Global Momentum


After the Great Recession, the U.S. economy led the developed world in economic growth. While the recovery may appear sluggish to Americans, our real GDP growth of nearly 13.5% in 2008–2017 far outpaced the 5.3% growth in the European Union and the 3.4% growth in Japan.Footnote 1 Now other developed countries are regaining momentum and appear ready to join the United States, along with China and other emerging markets, in driving a re-energized global recovery.


Virtually all global economic indicators are looking up these days. Real global growth is projected to be approximately 3.5% this year, compared with 3.2% in 2016. U.S. trade (as measured by the sum of U.S. exports and imports) is growing by 4.5% on a year-over-year basis compared with near-zero growth a year ago. In addition, world export volume is now rising by 3.2% on a year-over-year basis, which is up sharply from one year ago. Oil prices have recovered to levels where energy firms can start to show profits, but remain low enough to keep money in consumers’ pockets. International currencies have responded by strengthening against the dollar, which helps boost U.S. exports.


Through it all, inflation has remained under control throughout the developed world—well below target levels in the United States, Europe, Japan and even China. This gives central banks the luxury of normalizing interest rates slowly and carefully in order to avoid choking off the recovery before it gains steam. Canada only recently began raising its policy rates in July 2017, marking its first hike in about seven years. The United Kingdom may follow suit either late this year or in 2018, while the European Central Bank is likely to taper its quantitative easing but not start hiking interest rates until 2019. We are not likely to see an increase in rates in Japan for some time, as inflation remains stubbornly low.


While the promised legislative reforms of the Trump administration have not yet materialized, the U.S. economy continues to chug along at the same slow but steady pace. The first quarter’s disappointing GDP numbers were revised upward from their initial print of 1.1% to 1.9%, and we expect the economy to stay on track for about 2.2% growth this year. The threat of a trade war, which could derail the economy, appears low despite last year’s aggressive campaign rhetoric. We remain hopeful that tax reform and continuing deregulation will spur faster growth later this year or next.

Unemployment fell to a 16-year low of 4.3% earlier this year. Labor shortages are starting to appear, with only 1.2 unemployed workers for every job opening (compared with more than 6.6 available workers per job opening in 2008), the lowest level in 16 years.Footnote 2 However, this has not yet sparked price inflation or, surprisingly, higher wages. The reasons are not fully understood, but we suspect the transition from a manufacturing to a service economy, low productivity growth rates, the replacement of retiring baby boomers by lower-paid millennials and the growth of the freelance “gig economy” have all played a role in suppressing wages. With such sluggish growth and little sign of rising inflation, the Fed is not expected to raise interest rates until December at the earliest, with no more than two additional rate hikes anticipated in 2018.



The twin crises—political and economic—which have put a damper on European economies are both showing signs of easing. The defeat of populist candidates in recent Dutch and French elections have lifted the threat of these countries leaving the Eurozone (for now, at least). The United Kingdom appears to be heading toward a softer than expected Brexit, and even Greece’s challenges seem to be somewhat manageable. In fact, French and German leaders are now exploring ways to strengthen, not weaken, European unity.

Improved economic fundamentals are driving this renewed confidence. Unemployment in Germany is at its lowest level on record. Joblessness is also down in France, Italy and Spain. We’re forecasting 2017 GDP growth of 1.6% in France, over 2% in Germany and about 3% in Spain—strong numbers for those mature economies, especially compared with recent years. As a result, the European Central Bank is expected to gradually reduce its monthly bond-buying from €60b to €50b early next year—eventually working its way to zero—and perhaps start raising interest rates the following year.



Asian economies are also showing signs of strength. In Japan, Prime Minister Abe’s stimulus policies are expected to keep growth at 1.2% in 2017, following a 1.0% growth pace last year, while near-zero interest rates will continue to spur investment. To counter Japan’s labor shortage, national child care centers are drawing women into the work force while automation enables older workers to stay on the job longer. Corporate profits are expected to grow 10% this year.

China had stronger-than-expected growth of 6.9% in the second quarter, due to fiscal stimulus at record levels of about 4.5% (as a percentage of its GDP). However, the government is now tightening credit in the hot real estate sector, which should restrain annual growth to about 6.6%, similar to last year. Chinese inflation remains subdued at about 1.5%, well below the government’s target rate of 3%.

We expect Asia’s other emerging markets to profit from the improving global economy as well. Exporting countries like India, South Korea, Taiwan and Indonesia have long reaped the benefits of rising global demand. Now these economies also have their own growing consumer markets to bolster domestic consumption. In fact, India is challenging China to be the world’s fastest-growing economy this year, with growth projected near 7% and supported by its recent central bank rate cut of 0.25%.


Stronger overseas markets are good for investors. Having multiple engines of growth helps maintain a balanced global economy. Investors can expect to benefit from strong international equities with exposure to emerging markets. As always, global diversification is the key to participating in this growth while managing investment risk.


Anthony Chan

Anthony Chan, PhD

Chief Economist for Chase

Anthony's Biography

Other developed countries appear ready to join the United States in driving a re-energized global economy.

The Fed is not expected to raise interest rates until December at the earliest.

Europe’s political and economic crises are both showing signs of easing.

Asia’s emerging markets now have their own growing consumer markets to bolster domestic consumption.

Stronger overseas markets are good for investors.

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