Solid growth spreads to include previously soft economies – NAB

Analysts at NAB suggest that the upturn in the advanced economies is broadening out and the US and Canadian economies have been the standout growth performers through the recovery from the GFC. 

Key Quotes

“The UK growth record has fallen well short of what was seen in earlier recoveries but it has, at least, been far better than that experienced in the two worst-performing areas - Japan and the Euro-zone, which in combination represent a sizeable 16% of the world economy.”    

“2017 has seen the pace of expansion finally pick-up in those two slower growing economies.  Euro-zone growth has ramped up to an annualised rate of around 2½% in the year ended September quarter 2017, well above the 1¾% annualised pace averaged over the previous year.  There is, however, still great divergence within the Euro-zone with Germany recording a strong economic upturn while the Italian economy is smaller than it was in early 2008!  The Japanese economy has also seen a marked lift through 2017 with second and third quarter growth averaging almost 2¾% at an annualised pace.” 

“Recent output expansion in both the Euro-zone and Japan outstrips estimates of the growth in their long-run productive potential, an outcome only made possible by eroding margins of spare capacity.  The Bank of Japan thinks that country’s potential annual growth is currently between ½% and 1% and most other estimates are under 1%. The jobless rate has fallen under 3%, there is declining underemployment, little idle capacity in manufacturing and “output gap” estimates show that the economy has few spare resources left.  This highlights the importance of getting a solid upturn in investment to lift the economy’s productive potential and sustain future growth.”

“Estimates of the pace of growth that the Eurozone can sustain over a long period have been revised lower since the global financial crisis.  It is now thought that the Eurozone, the third biggest economic block in the world (after China and the US) can only grow over the long haul at an annual average rate of around 1% but that does not mean that the region’s current 2.6% yoy economic upturn has to suddenly stop.  The Euro-zone unemployment rate is still a high 8.8% and there is plenty of under-employment and idle capacity in parts of the currency block.  Higher investment is, however, still important in securing a lasting upturn in the pace of output expansion.”