Stop being complacent, warned Atradius chief economist John Lorié.
While economic growth has stabilized globally in the past six months and induced a series of upward forecast revisions particularly in the Eurozone, the current upswing—being largely cyclical—is expected to be short-lived and undoubtedly succeeded by a downturn, the economist said in a report titled A hint of spring is in the air, recently published by global trade finance insurer Atradius.
"It is therefore crucial that when the next downturn sets in, economic policy tools -- especially those of monetary policy -- are available to keep the global economy above water," he warned.
Fortunately, Lorié believes those policy tools will be available. “Monetary tightening that has currently set in by the Federal Reserve, and to be followed suit by the European Central Bank, will provide for that: interest rates are being hiked and money taken out of the market. Still, as it stands now this looks like a very, very gradual process,” he said.
At some point in time, acceleration will become inevitable, the economist noted. “That will be a balancing act. Tightening should create necessary utensils to address the next downturn. At the same time, accelerating the next downturn by that very tightening should be avoided,” he said.
Global: GDP growth expands to 2.9% from 2.4% in 2016, expected to further increase to 3.1% in the year ahead.
Advanced Markets: visible strong growth of 2.3% in the Eurozone, in comparison to 2.2% in the US and 1.5% in the UK.
Emerging Markets: largely driven by external demand, Emerging Asia sees 6% growth; Latin America 1.1% and Eastern Europe 3.1%.
Impact on credit insurers: cyclical upturn in global economy drives positive insolvency outlook in both advanced and Emerging Markets.
Remaining risks: misguided Fed policy, China’s hard landing, US protectionism, oil price volatility, geopolitical risk and financial market correction.