Time to celebrate as global economy is on a roll? Not yet

As 2016 was drawing to a close, there was plenty to worry about the global economic outlook for the pessimist.The twin shocks of the UK’s vote to leave the European Union and Donald Trump’s electoral victory jolted the geopolitical order in the year. A soaring US dollar; emerging markets facing increased money outflows following the Federal Reserve tightening; turmoil in the Middle East along with large-scale investment cuts driven by the plunge in oil prices; uneven growth pattern in China built on a government borrowing binge; Brazil’s crippling recession; India’s economy bracing for a growth hit from the recall of high-value currencies - it was an endless list.Some of the risk factors are still lingering, but the tables have turned. The global economy is on its best roll in years and set to do better in 2018, according to the International Monetary Fund. Output growth would increase from 3.2% in 2016 to 3.6% this year and 3.7% in 2018. The fund has boosted growth forecasts for every advanced economy, except the UK and Spain.Spurred by higher profits and buoyant stock markets, some of the world’s best known companies from Amazon.com to Volkswagen are ramping up spending on new plants and equipment after years of caution. For an international economic expansion already gathering speed, that could prove a boon. Capital investment, or capex, is seen boosting not just demand, but ultimately higher wages and inflation. Meantime, Asia’s surging exports are fuelling expectations that the region’s factories will support investment as they race to meet demand for everything from semiconductors and chemicals to automobiles and smartphones.Taiwan in September posted record exports for both shipments and export orders. Chinese exports increased 8.1%. In Thailand, the pace of export growth remains near the four-year high reached in August. The Asia Pacific region is expected to account for more than 63% of global GDP growth in 2017, according to the IMF, but much will depend on the pace the Fed raises rates which dictate Asia’s currencies.Time to celebrate? Not yet. Just as global central bankers are unwinding their ultra-easy monetary policies, with a few notable exceptions, economists don’t see enough price pressures building up, according to the latest Reuters survey conducted across the world. A major worry is the worst-case “Minsky moment” prediction for the debt-driven Chinese economy, the single biggest contributor to global GDP growth. China’s total borrowing climbed to about 260% of the economy’s size by the end of 2016, up from 162% in 2008, and will hit close to 320% by 2021 according to Bloomberg Intelligence estimates. The economy, Asia’s largest and the world’s second-biggest, is forecast to expand 6.4% next year, but faces the twin risks of managing its massive debt pile and a highly inflated property market.The IMF has cautioned the global recovery is far from complete. Along with weak productivity and low inflation, worries include geopolitical risks and simmering trade tensions. When the odds are uncertain, being prepared could make the difference.