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By HaleStewart December 31, 2017 7:48 am
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International Economic Week in Review: 2017 Ends on a High Note

            This was a good year for the global economy.  The EU, which has suffered from two potential economic crisis in the last seven years, had one year of consistently good economic data.  The UK has yet to experience severe negative post-Brexit developments (although weak construction spending may develop into a broader problem in 2018).  Canada has emerged from its oil-market caused recession, Japan is growing at a solid pace and Australia continues to expand.

            According to the latest Eurostat release, EU GDP grew 2.6% Y/Y in the 3Q17.  The pace of growth is accelerating:

In the latest report, household spending rose 1.9%, investment was up 4.2%, exports increased 5.2% and imports (a sign internal demand) advanced 5.1% (all figures are Y/Y).  The employment situation continues to improve:

The latest headline rate was 8.8%.  Three of the largest four economies are above the average, pulling it higher: Spain 16.7%, France 9.4%, Italy 11.1%.  Only Germany, which has a 3.6% rate, is below the EU average.  Like other regions, inflation is low: the headline rate has fluctuated between 1.3% and 1.5% since June:

Core inflation is lower: it rose between 1.1% and 1.3% since the summer.  The EU enters 2018 on solid economic footing.

              The UK is doing fairly well. The latest GDP report had a 1.7% Y/Y topline increase.  However, this was the weakest reading in three years: 

The services sector expanded .4% Q/Q with ¾ of sectors growing.  Production was strong; it increased 1.1% Q/Q with all four sectors contributing to growth.  However, construction contracted for the second consecutive quarter, this time falling .9%.  Brexit uncertainly is undoubtedly the primary reasons for this weakness.  The labor market is in great shape: unemployment is 4.3% while the employment/population ratio is near its highest level since the early 1970s.  However, the latest inflation reading was 3.1%, the highest reading in over two years:

The BOE argues currency weakness is the primary cause.  But according to the latest CPI report, a large number of sub-categories contributed to the increase, which may indicate that other factors are contributing to the problems.

            Canada has emerged from its oil-market induced recession.  According to the latest GDP report, topline growth increased 3% Y/Y.  Household consumption expenditures advanced 4% while investments advanced a smaller 2%.  Exports modestly contracted, falling .4% Y/Y.  But imports (a sign of domestic demand) were up 2.4%.  The unemployment rate is dropping; it fell .4% in its latest release, falling to 5.9%.  The labor market is clearly strengthening:

CPI was up 2.1% in the latest report.  But this was due to a sharp .7 increase caused by transportation price increases:

I would expect this number to decline in coming months.

            While Japanese growth is positive, they still suffer from weak inflation.  GDP has been rising since 1Q16 and is currently at 2.1% Y/Y.

In the latest report, household consumption was weak; it contracted .5% Q/Q.  But business investment rose a healthy 1.1% and thanks to a weak yen, exports advanced 1.5%.  Unemployment is astronomically low at 2.7%.  Unfortunately, stronger growth and low unemployment are not stirring higher prices: CPI is still a paltry .6%.  On an annual basis, goods prices are up 1.1% but service prices (which represent the bulk of spending) only increased .1%.

            Thanks to their symbiotic relationship with China (Australia provides raw materials for Chinese infrastructure expansion), Australia has had nearly 20 years of continuous growth.  Their latest GDP reading of 2.8% continues that trend:

Unemployment has dropped all year falling from 5.8% to its current 5.4% reading.  And inflation is contained: although it briefly rose over 2% earlier this year, it has since retreated to 1.8%:

            While there are no storms on the horizon, there are a few clouds.  Brexit is obviously the most potentially economically damaging development in the EU area.  Japan still has a weak inflation problem and Australian consumers have maintained strong spending thanks to increased borrowing.  However, as we end 2017, we can say that the global economy is in fairly good shape.

            In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

           

 

           

 

           

 

 

           

 

           

 

           

 

 

           

 

           

 

           

 

 

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