EUR 3.48 For Business Accounts Only

Nigeria Strategy Report H1 2018 Excerpts - Global Growth: Riding on the swing of improved fundamentals

Nigeria Strategy Report – H1 2018 Excerpts

Global Economy and Markets

• Over the next few weeks, we will feature excerpts from our core strategy document – The Nigeria Strategy Report. The report communicates our understanding on key happenings in global and domestic financial markets over H2 2017 and provides our insight on what we believe will be the major themes underpinning investor sentiment for 2018. We begin the series with a look at the major themes that dominated the global economic and financial landscape in H2 2018 as well as our outlook for 2018.
• Entering 2017, investors worried that the downside risk from political elections across the Euro Area and anti-trade rhetoric in the face of a strong US dollar under a Trump presidency could dampen growth in the globe. However, the global economy was upbeat with economic momentum in developed nations prompting a rumbling effect across the globe. Accordingly, the IMF estimated that global GDP expanded by 3.6% over 2017 relative to 3.2% in 2016. The driver for growth was a recipe of supportive fiscal policies in some key countries following years of slower growth, low inflation, and strong global trade.  For context, DMs are estimated to have grown by 2.2% YoY (compared to 1.7% in FY 16) while the emerging economies’ (EMs) growth is estimated at 4.6% from 4.3% in FY 16.
• Going into 2018, the IMF estimates a 10bps expansion in global GDP to 3.7% YoY largely reflecting improved output in most regions excluding the middle east. Precisely, growth in emerging market and developing economies is expected to offset the slower expected growth in advanced economies. Growth in EMs is projected to be 30bps higher than 2017reading at 4.9% YoY reflecting a rebound in commodity prices and improved confidence in the region. While the pass-through effect of gradual tightening of monetary stance in advanced economies is expected to be negative on emerging markets and developing economies, the projected rebound in global trade (4% YoY in 2018) is expected to more than offset the feed through of the monetary policy normalisation.
• With the robust growth recorded over 2017, amidst rising inflation expectations across advanced economies, the prospect for a more less accommodative monetary policy has gained traction. In the US, the gradual improvement in the labor market and guidance towards an accommodative fiscal stance in 2018, justifies the policy normalization in our view. Unsurprisingly, the Fed retained its forecast for three additional rate increases in 2018 and 2019 unchanged. In the Euro Area, the planned halving of monthly purchases to 30 billion euros starting January until September 2018, suggests a gradual wound down of quantitative easing by the ECB. However, a faster rate of growth in the inflation rate, from rising energy prices in 2018, could change the ECBs position earlier than anticipated.
• The BoE, in response to the rising inflationary pressure, raised its key rate for the first time in 10 years, despite growth slowdown over 2017. With economic outlook over 2018 largely uncertain amidst the rising price pressure from imported and energy related products, the prospect of a further rate hike is likely. Elsewhere in Japan, the BoJ continues to reiterate its resolve to maintain its resolve to maintain its accommodative policy until inflation attains its 2% target from current level of 0.2% as at October 2017.