Boom is back: world economy to put on strongest spurt since before the financial crisis 

Global economic growth will rise by more than 3pc in three consecutive years, in a performance not seen since the years leading up to the financial crisis.
Fears of permanently lower growth will be swept away by the prediction from analysts at Fitch Ratings.
And the economists do not think this will lead to a surge in inflation which would require sharply higher interest rates, potentially casting the world into recession – suggesting the world economy is in a sweet spot and can sustain the healthy performance.
“World growth forecasts have been upgraded again as the eurozone recovery powers ahead, US fiscal policy is eased by more than anticipated and higher commodity prices underpin the emerging-market recovery,” said Fitch.
Confident companies in advanced economies are investing more, strong jobs markets are boosting consumer spending and even choppier financial markets do “not look like a signal of rising recession risk”.
Boom is back: world economy to put on strongest spurt since before the financial crisis 

Donald Trump's tax cuts and government spending plans are one factor pushing up growth

Alex Gallardo/AP
“The balance of inflation risks has clearly shifted – cementing the move towards normalisation by the world’s major central banks – but Fitch does not foresee a disruptive outburst of inflation that would prompt sharp, growth-negative monetary policy adjustments in 2018,” the analysts said.
Fitch now estimates GDP growth hit 3.2pc last year and will come in at 3.3pc for 2018 and 3.2pc for 2019, up from 2.5pc in 2016 and an average of 2.8pc over the past four years.
Britain’s growth is predicted to slow from 1.7pc in 2017 to 1.4pc this year before bouncing back to 1.7pc in 2019.
This is expected to result in one interest rate hike this year and two next year, as the economy is deemed to be close to full capacity.
Globally, Fitch said “central banks are becoming less cautious in their approach to normalising monetary policy as labour markets tighten and spare capacity disappears.”
The economists predict four interest rate hikes in the US this year as growth stays strong, while the European Central Bank is gradually moving towards tightening – which could mean a rate rise in late 2019.
Boom is back: world economy to put on strongest spurt since before the financial crisis 

New Fed chair Jerome Powell is expected to raise interest rates four times this year – though Fitch warns a spike in inflation could mean faster hikes and so a downturn in growth

Although Fitch does not expect a sharp rise in rates it does acknowledge this is a key risk to world growth.
One threat is “a sharp pick-up in US core inflation, prompting Fed tightening on a much more aggressive scale than assumed in the forecast, and a major global interest rate shock,” the report said.
“A rapid pick-up in wage growth in the context of increasing labour shortages would be the most likely catalyst for this. This would be growth negative.”
A second key risk is that the recent step up in US protectionist measures could escalate into a severe global trade war.”
“Our central case remains that trade sanctions will remain piecemeal and product-specific, with limited macroeconomic impacts,” Fitch said.
“But the risk of much more serious damage to the multilateral trading framework and of across-the-board US geography-based tariffs has increased.”
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