Part 4 Macro-economic Overview
I. Global Economic and Financial Developments
During the first half of 2017, the global economy continued to recover. The International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) both revised upward their forecasts for global economic growth in 2017 to 3.5 percent. However, growth in the major economies diverged somewhat. The United States witnessed some repeated twists and turns in its economic recoverywhereas growth in the euro area and Japan continued to pick up. The emerging market economies generally grew relatively rapidly, although they continued to face economic restructuring and transformation pressures. Inflation remained subdued in the major economies.
Developments in the major economies
The US economic recovery saw some twists and turns. The annualized quarter-on-quarter GDP growth was revised three times to 1.2 percent in the first quarter of 2017, down 0.6 percentage point from the end of the last year, pointing to a weak start. Boosted by, among other things, rising personal consumption expenditures (PCE), a recovering manufacturing sector, and increasing federal government spending, the annualized quarter-on-quarter GDP growth jumped to 2.6 percent in the second quarter. The jobless rate remained at low levels, dropping to a ten-year low of 4.3 percent in May before edging up to 4.4 percent in June. However, the rise in non-farm payrolls recently saw some volatility after larger gains earlier this year. The PCE price index and the consumer price index (CPI) declined gradually since March, both to a lower-than-expected level. Given that progress of the fiscal stimulus did not meet market expectations, the IMF revised downward its forecast for US growth in 2017 by 0.2 percentage point to 2.1 percent.
In the euro area, political uncertainties receded somewhat and economic fundamentals continued to improve. GDP grew 1.9 percent year on year during the first three months and it recovered further to 2.1 percent in the second quarter. The manufacturing PMI strengthened for ten consecutive months, hitting a six-year high of 57.4 in June. The unemployment rate continued to drop, posting 9.1 percent in June, the lowest level since the outbreak of the European sovereign debt crisis. However, the rise in inflation was not sustainable, as the year-on-year growth of the harmonized index of consumer prices (HICP) declined to 1.3 percent in June, after moving close to the target set by the European Central Bank (ECB) in the first quarter.
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In Japan, the economic recovery was maintained, and despite lower-than-expected growth of 1 percent during the first quarter, the annualized quarter-on-quarter GDP growth remained in positive territory for five successive quarters, which represented its best performance in the wake of the global financial crisis. Moreover, inflation was also on the rise, as the CPI grew 0.4 percent year on year in May, registering positive for eight consecutive months.
Overall growth in the emerging market economies was relatively fast, though some of the emerging market economies still faced restructuring and transformation pressures. India maintained rapid growth as GDP grew 6.1 percent in the first quarter. Nevertheless, given its unresolved challenges, such as the high non-performing loan ratio and the weak private investments, the effects of the reform still need to be watched. Due to an increase in the prices of oil and other commodities, growth gradually stabilized in Russia and Brazil, and inflation was contained. However, recent political turmoil in Brazil and falling oil prices added to the uncertainties about economic growth in these two countries. Against the backdrop of sluggish aggregate global demand and a possible change in the monetary policy stance of the advanced economies, some emerging market economies still faced potential risks, such as weak external demand and volatile cross-border capital flows. Economic restructuring and transformation pressures persisted.
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