12 July 2018 ( Lagos ) : The year 2018 started with worries that the high base of 2017 and protectionism rhetoric between US and China would have a reverberating effect on global growth. Over H1 2018, the duo of stronger growth across emerging markets – relaying the still elevated commodity prices, especially for oil exporting countries – and growth resilience in advanced economies have re-shaped the landscape with consensus global growth now far exceeding the view at the start of the year.

For the rest of the year, analysts are more optimistic on growth across advanced and emerging economies, reflecting improvement in consumer and business sentiment, supportive global monetary policy stance and fiscal stimulus. Consequently, global economy is now forecast to increase by 3.9% YoY. While reasons abound for investors to be cautious going into the second half of the year with the trade protectionism tariffs now in effect, analysts believe the impact would be a switch in trade from one region to another, without any major impact on overall global growth. 

In advanced economies, growth is projected to peak at 2.5% YoY in 2018, while growth in EMs is projected 10bps higher than 2017 reading at 4.9% YoY, a reflection of the still elevated commodity prices, improved confidence in the region and a stronger projected growth in the middle east and Latin America over 2019.

Monetary policy in Developed Markets, still a dovish flow

Across DMs, the monetary policy environment remained broadly accommodating save for US – wherein tighter labor market and sustained uptrend in inflation rate led the FED5 to continue its

interest rate normalization, hiking its benchmark rate by 25bps at its March and June meeting, leaving the range of its target fund rate at 1.75% - 2.00%. In EU and UK, contrary to expectation of rate hikes in the wake of inflationary pressure6, the respective central banks7 left rates unchanged following weak economic growth reported in the first quarter of 2018. 

However, the tone of the policy committee suggests a shift in the months ahead contingent on favorable economic data and inflation outlook. Specifically, in EU, the ECB reiterated its resolve to reduce its bond purchase program (QE) to €15 billion starting October, from €30 billion currently, and then fully unwind its QE program in December. 

While in reaction to possible drag from Brexit, the BoE decided to maintain its stock of investment grade corporate bonds at £10 billion and U.K government bonds at £435 billion. In Japan, owing to a slow rise in inflation (May: 0.7% YoY) towards its target level of 2%, the bank of Japan left its monetary policy rate unchanged at -0.1% and voted to maintain its government bond purchases till it’s able to push its government 10-year bond yield close to zero.

Reporting for EasyKobo on Thursday, 12 July 2018 in Lagos, Nigeria

Source: ARM Securities Limited

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