By Josh Zumbrun
The International Monetary Fund estimates that the world's seven
biggest economies -- the U.S., China, Germany, Japan, France, the
U.K. and India -- each grew more than 1.5% in 2017. That kind of
synchronicity is uncommon, and it might set the world economy up
for more solid growth in 2018.
It might sound surprising because it has been nearly a decade
since the world's economy began growing again following the global
financial crisis. But rather than petering out -- or succumbing to
forces of protectionism and nationalism, as many had feared a year
ago -- economies around the world gained strength in 2017 and
appear poised to strengthen a bit further.
Economic data for 2018 already shows some of that strength. The
JPMorgan Chase and IHS Markit global purchasing managers index this
month was the strongest it has been in nearly seven years. Official
industrial production gauges are also near their strongest levels
since early 2011, showing a global economy that's getting a second
wind.
"Global manufacturing output is booming," says David Hensley,
director of Global Economic Coordination at JPMorgan. "The
acceleration in output has been very broad-based by region and
sector, powered by impressive gains in global retail sales and
capital expenditures."
The phenomenon of globally synchronized economic growth became
apparent in 2017 when a number of large commodity-producing nations
emerged from recessions caused largely by the collapse of oil
prices. As commodity prices bottomed out, those nations found their
footing.
Moreover, no major economies stumbled into recession in 2017,
leading to the remarkable situation where all 45 major economies
tracked by the Organization for Economic Cooperation and
Development were growing at the same time, for the first time since
the global financial crisis.
U.S. growth was stronger in 2017 than in 2016, and record levels
reached by U.S. equity indexes suggest a bright future to
investors. Forecasters in The Wall Street Journal's monthly survey
of economists place just a 13% chance on a recession occurring in
the next year, the lowest estimate since mid-2015 when U.S.
consumers were benefiting from lower oil prices.
Global equity indexes have roared upward in the past year. The
Global Dow Index, which tracks 150 of the world's leading
companies, was up 26% over a one-year period through Jan. 19, while
the Dow Jones Industrial Average of 30 U.S. blue chips was up
31%.
But despite U.S. market strength, the biggest surprise in recent
months for growth has been the eurozone, which appears to have
surpassed the growth rate of the U.S. last year, although final
numbers have not yet been released. The OECD estimates that the
eurozone grew 2.4% in 2017, compared with 2.2% growth for the U.S.
in the same period.
While the numbers are not huge in historical terms, their
stability is mutually reinforcing.
"The U.S. expanding causes European exports to strengthen,
causes their economy to strengthen, which feeds back and leads to
higher demand for our exports," said Jay Bryson, global economist
for Wells Fargo Securities. "For the U.S. that effect is relatively
small, but for other countries, those feedbacks on a global basis
can be very, very important."
Indeed, synchronized economic expansions, like the one we're in
now, tend to be self-reinforcing. And they can carry on for
extended periods.
According to the IMF's latest estimate, among 176 countries for
which it gathers data, 150 managed to increase their exports last
year. That means more than 85% of the world's nations increased
their exporting last year, the highest share of nations on
record.
The previous times all the world's economies got in sync tended
to last for several years. From 2004 to 2007, all the world's major
economies were growing; that was also the case for several years in
the late 1980s. Of course those booms ended -- and badly in the
2000s -- but not before posting a series of strong years globally.
The global economy grew at about 4% a year from 1984 to 1989 and
again from 2004 to 2007.
"Assuming the geopolitics don't turn nasty, I would think the
expansion probably continues" for at least a couple more years, Mr.
Bryson says.
An extended period of synchronized growth helps, but it won't
solve all the world's economic challenges. In addition to
geopolitical risks, such as trade wars, actual wars and a turn
toward more nationalist policies, many governments around the world
are carrying unprecedented debt burdens. Aging populations and
slowing productivity growth have raised questions about whether the
world's nations have the potential to grow all that much
faster.
From 2012 to 2016 the global economy grew only about 2.5% a
year, according to World Bank data. That pace rose to 3% in 2017
and is expected to climb a bit further in 2018, reaching the
highest level in seven years.
"When you have a global recession, you can't export your way
out," says Ayhan Kose, director of the World Bank's division that
produces economic forecasts. By contrast, a country that started to
stumble now could turn to nearly any trading partner for a boost.
"This creates its own momentum, feeding its own cycle."
Mr. Zumbrun is a national economics correspondent for The Wall
Street Journal in Washington. He can be reached at
josh.zambrun@wsj.com.
(END) Dow Jones Newswires
January 22, 2018 16:33 ET (21:33 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.