G7 Outlook

US GDP growth rose by 1.6% (y-o-y) in Q3 but in q-o-q terms, activity doubled from the Q2 pace of 0.4% to 0.8%. The economy was lifted by consumer spending, although this slowed from the second quarter. On the other side of the domestic-demand equation, business investment remained in contraction, and on a q-o-q basis, investment was flat as firms exercised caution ahead of November’s highly-charged election. US and Canadian GDP expectations are uncertain, pending Trump’s criticism of NAFTA, and the US growth projection is relatively modest when compared with around 3% exactly a decade ago. Indeed, quarterly GDP forecasts for the rest of the G-7 also indicate only modest rates of activity, with sentiment having deteriorated compared with 6 months and one year ago, especially in the case of France, the UK and Italy. Factors including widespread loss of confidence in the political status quo are impinging on all three countries. Brexit hangs over UK estimates, its outcome an unknowable factor at this point, but with risk edging to the downside due to fears of trade isolation and lost dynamism. France is facing a political test in April-May 2017 amid entrenched economic (and societal) stagnation, as reflected in its muted GDP projections. Italian voters have rejected political reform leaving the government in limbo, and Italian GDP growth is not expected to break 1% until 2018. Japanese GDP forecasts project similarly weak growth momentum. Meanwhile, inflation forecasts for Japan and the Euro area remain notably below target.

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