The global economy is expanding across a broad front, and world trade, in particular, has strengthened following an exceptionally weak period. At the same time, global inflation remains subdued. The Bank of Finland foresees world growth strengthening to 3.5% in 2017 and continuing at over 3% through 2018–2019. Slow potential growth in the advanced economies and structural changes in the Chinese economy will dampen the growth pattern towards the end of the forecast horizon. Risks to the global growth forecast have decreased, but they remain tilted on the downside.
The US economy will continue to expand, despite the fading expectations of stimulus measures and the unclear course of economic policy. Chinese growth is still expected to decelerate, albeit slightly later than previously expected, to 6% in 2018 and 5% in 2019.
China is the world's largest economy, with a significant impact on the global economy. The global weight of the advanced economies has decreased. A stronger-than-forecast deceleration in China's debt-driven growth would weaken confidence globally and significantly dampen growth.
Stronger dynamics in the euro area will compensate for the impact of Brexit on the European economy. The euro area economy has grown at a pace of about 2%. Investments in the euro area have rebounded, and employment continues to grow for the fourth consecutive year. The global upswing will support euro area growth. In addition to the economic upswing, structural reforms, too, have supported employment growth by boosting the participation rate. Despite the solid growth, core inflation has shown signs of only a slight pick-up, supported by the monetary policy of the ECB.
The pace of structural reform has slowed since the crisis years. In addition, the euro area is still affected by legacies from the financial and debt crises. In the longer term, slow population growth and weak productivity growth will dampen the prospects for the euro area.
For further information, please contact Hanna Freystätter, Head of Division, tel. +358 9 183 2490.
The package of articles on monetary policy and the international economic forecast will be published in English in October at www.bofbulletin.fi.