G-5 Improving Slightly

Recent 2017 GDP forecasts for the G-5 countries are indicating signs of slight improvement. In the UK, this recovery follows a setback to the outlook in the wake of Brexit. Even now, the GDP consensus remains well below expectations prior to the vote. Germany and France also suffered from some loss of sentiment in the immediate aftermath, but have since stabilised. The US outlook for GDP has strayed little from earlier forecasts. The surprise presidential victory for Republican Donald Trump triggered little unrest on the financial markets and, in fact, the stock market and US dollar have made broad gains. With the economy supported by strong jobs and earnings data, the Federal Reserve raised interest rates in December for the first time in a year. President-elect Trump’s planned spending splurge may speed up the rate of policy normalisation in the US going forward and provide more support for the dollar. In Japan, the failure to raise growth and inflation has led the government to delay a planned consumption tax hike for this year until 2019, and this may account for some of the uptick in GDP growth prospects. Despite extremely accommodative monetary policy, the Bank of Japan has been unable to kickstart inflation. The ECB has also encountered a prolonged period of deflationary pressures in the Euro area, although a sudden surge in December 2016 has buoyed expectations. A rebound in oil prices has contributed to this, while firms are facing an increase in factor costs. This has also been evident in the UK economy, following a heavy slide in sterling.

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