SINGAPORE (July 17): The global economy has certainly regained momentum in the past few months, helping to boost regional growth through stronger export volumes and higher commodity prices. However, concerns are being expressed that the pace of global demand is unlikely to be sustained as monetary policy is tightened in the US and the tech cycle peaks. Moreover, the proliferation of highly unpredictable risks such as rising protectionist sentiments and the potential for financial shocks in China do not help. Neither do the accumulating political uncertainties: US President Donald Trump appears less and less able to push through his agenda and may even face embarrassing investigations, while business confidence is hurt by crises in the Middle East and Korean Peninsula, the outcomes of which are difficult to predict.

Nevertheless, our view is that the tide of rising global demand led by solid economic growth in the G3 bloc, lower oil prices and stabilisation in China have sparked mutually reinforcing upward cycles in demand. These multiple drivers of the recovery provide broad-based strength and will help sustain the economic rebound, particularly in export- orientated Asia, even though some signs of moderation and blips are beginning to emerge.

Global demand helped by multiple drivers, such as G3, large emerging economies revving up and lower oil prices

  • The US, Europe and Japan are on track for reasonably robust economic performances in 2017 and 2018. We are beginning to see multi-year highs in some economic data. For example, the US ISM Purchasing Managers Index (PMI) for the manufacturing sector touched a three-year high of 57.8 in June, up significantly from 54.9 in May. Japan’s “tankan” survey — a short-term economic survey of enterprises — showed confidence among large manufacturing companies at a three-year high as well. Even better, the prospects in Europe are turning around dramatically. Consumer confidence in the euro zone reached its highest level since 2001, while Germany’s IFO Business Climate Index reached a record high in June. Moreover, the Organization for Economic Cooperation and Development’s leading indicators are pointing to good growth, around trend, for the OECD club of rich countries.
  • China’s economy is stabilising: The latest purchasing manager indices revealed further stabilisation in China’s manufacturing and services sectors, despite policy makers’ crusade against financial excesses and property bubbles.
  • Other large emerging economies also gaining vigour: India is set to regain momentum after the sharp slowdown caused by the demonetisation exercise last November. Now that the government has pulled off the most promising tax reform in decades with the success ful implementation of a nationwide goods and services tax, businesses should have more clarity on demand conditions going forward. Elsewhere, we are seeing Russia and Brazil coming out of a long period of economic dislocation, while Turkey’s growth is bouncing back after the hit to economic confidence from the failed military coup a year ago.
  • Oil prices have edged down: Oil prices are in a sweet spot — not falling so sharply as to damage oil producers or investments in the energy sector in the US, but low enough to stimulate demand, especially in oil- dependent economies such as India and Thailand.

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