Fastest global growth in 7 yearsGlobal economy; Consumer sentiment
Global growth picks up: The International Monetary Fund (IMF) raised its forecast for global economic growth to 3.9 per cent in 2018, up by 0.2 percentage points from its previous projection. If realised it would be the fastest pace of growth in seven years.
Consumer confidence: The weekly ANZ/Roy Morgan consumer confidence rating recorded a seasonal fall of 3.3 per cent to 119.4, declining from 4-year highs. Confidence is up by 1.1 per cent over the year and well above the average of 113.4 since 2014 and average of 112.9 since 1990.
What does it all mean?
The global economy continues to strengthen. And forecasts for this year and next have been upgraded reflecting increased growth momentum in the US, Germany, Japan and some key emerging markets, like Brazil.
Global growth is synchronised and broad-based, supported by low interest rates, benign inflation and ongoing monetary stimulus. Fiscal policy is largely expansionary with solid government spending on infrastructure projects. Business investment is picking-up, jobless rates are declining and consumer confidence is high in most developed countries.
While the IMF hasn’t made changes to Australia’s economic growth forecasts, the growth upgrades to our largest trading partners and foreign direct investors – China, United States and Japan – are encouraging for our exportoriented sectors, such as tourism, education, agriculture and mining.
Still, the IMF warns that we should guard against rising inflation and borrowing costs as global demand accelerates. The 10-year US Treasury bond yield is sensitive to economic growth and inflation and has risen to 3½-year highs of 2.67 per cent on growing inflation expectations. Rising oil, rental accommodation and health care costs are seen as contributors to rising consumer prices in the US in 2018.
Aussie consumers had begun the year in good spirits with confidence at 4-year highs. However, a heatwave increased concerns about Victoria and South Australia’s power supply, weighing on sentiment. Blackouts occurred in parts of Adelaide on Friday evening.
A looming rail strike in Sydney, rising petrol prices and a small increase in the unemployment rate may also have affected confidence. But importantly consumer confidence traditionally eases in January in the week before Australia Day.
What do the figures show?
Global economy
The IMF’s World Economic Outlook Update for January 2018 has forecast the following economic growth for 2018 (previous forecasts October 2017):
Global growth up by 0.2 percentage points to 3.9 per cent;
Advanced economies up by 0.3 percentage points to 2.3 per cent;
United States up by 0.4 percentage points to 2.7 per cent;
Euro Area up by 0.3 percentage points to 2.2 per cent;
Germany up by 0.5 percentage points to 2.3 per cent;
Japan up by 0.5 percentage points to 1.2 per cent;
UK unchanged at 1.5 per cent;
Emerging market and developing economies unchanged at 4.9 per cent;
China up by 0.1 percentage points to 6.6 per cent;
India unchanged at 7.4 per cent;
Brazil up by 0.4 percentage points to 1.9 per cent.
Consumer sentiment
The weekly ANZ/Roy Morgan consumer confidence rating fell by 3.3 per cent to 119.4, declining from 4-year highs. Confidence is up by 1.1 per cent over the year and well above the average of 113.4 since 2014 and average of 112.9 since 1990.
All five components of the index fell in the latest week:
The estimate of family finances compared with a year ago was down from +15.2 to +4.7;
The estimate of family finances over the next year was down from +29.0 to +26.2;
Economic conditions over the next 12 months was down from +15.3 to +11.2;
Economic conditions over the next 5 years was down from +14.6 to +13.1;
The measure of whether it was a good time to buy a major household item fell from +43.3 to +41.9.
The measure of inflation expectations 2 years ahead fell from 4.7 per cent to 4.6 per cent.
What is the importance of the economic data?
The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
The International Monetary Fund (IMF) releases its World Economic Outlook in January, April, July and October each year. The Fund’s economic growth forecasts are widely observed by economists and market participants. The IMF’s primary purpose is to ensure the stability of the international monetary system – the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The Fund’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
What are the implications for interest rates and investors?
The global economy is in good shape, with growth the broadest in seven years. Growth has picked up across the globe and the number of economies in recession is the lowest on record. 
A broad-based upswing in output is occurring across most developed and developing economies, led by China and the US. Australia’s largest trade partner, China, is expected to continue to grow at a healthy pace of 6.6 per cent this year. US output is projected to be bolstered by the Trump Administration’s recent tax cuts.
Australia stands to benefit from strong global trade flows and increasing wealth across the Asia-Pacific. China’s middle class are demanding more high quality goods and services from Australia. According to Tourism Australia, the number of travellers from the US rose by 9.8 per cent in the year to November, as the US economy strengthens. This will have a multiplier impact on our agribusiness and accommodation industries.
Consumers remain more upbeat at the beginning of this year than last. And there are reasons to be optimistic. Australian businesses are hiring workers at the strongest pace in 12½ years, variable mortgage rates are at the lowest level since 1959, the Aussie dollar is around US80 cents (great for overseas travel) and the prices of everyday goods, such as groceries, continue are falling.
CommSec expects interest rate stability through to late 2018.
Originally published by Ryan Felsman, Senior Economist, CommSec