SINGAPORE (Jan 8): The new year has started well, equity markets are up and a rash of strong economic data, across both developing as well as developed economies, has boosted the upbeat mood. None of us has a crystal ball that can tell us whether this bullish mood will last. But, what we can do is identify the significant forces and work out how they might shape the landscape over the course of the year.

What emerged from that exercise are warning signs that the good news may not last. Certainly, the cyclical outlook is much stronger than anyone had expected. But, beyond that, three key trends could cause trouble for all of us: financial market vulnerabilities, the threat to the world trade regime and the political vacuum created by the Donald Trump administration’s global strategy.

Global economy should surprise on the upside
The cyclical uplift in the global economy should continue well into 2018 as the economic data has been very strong across the board. In particular, the latest Purchasing Managers’ Index (PMI) surveys that came out in the new year recorded multi-year highs in manufacturing and services activity in diverse parts of the world. Even the long-suffering Japanese economy looks robust. Most encouragingly, the indicators that have a good record of predicting the course of economic activity — the Organisation for Economic Co-operation and Development lead indicator, overall new orders and new export orders — are all signalling continued vibrancy. Technology demand is also strong, with global sales of semiconductors soaring 21.5% y-o-y in November 2017 to their highest level ever.

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