John Greenwood’s quarterly economic outlook – Q3 2017

With the US Federal Reserve gradually normalising interest rates, the US economy appears to be in good shape. Can President Trump take any of the credit?

Summary

The US business cycle expansion is still intact, owing much more to underlying fundamentals such as private sector deleveraging, the recovery of the banks, improved consumer finances, low inflation, and continuing low interest rates than any impact from the accession of Mr Trump to the Presidency.

In my view the US expansion should be able to continue for several more years, creating the basis for further upswings in equities, real estate and other risk assets as the expanding GDP or total spending is reflected in higher corporate and household earnings.

The main risk to this scenario is that the Federal Reserve tightens credit too sharply, not by raising interest rates, but by curtailing credit growth in the private sector.

In the Euro-area growth has improved and the hurdle of political elections has passed without threat to the Euro currency system.

The triggering of Article 50 on 29 March for Brexit will lead to protracted negotiations between Britain and the EU over the next two years. During that period I expect any progress or setbacks in the discussions to be directly reflected in sterling and gilt yields, which will inevitably be volatile.

The Japanese economy has seen slightly better growth, but inflation remains far below 2%. The combined policies of Prime Minister Abe and Governor Kuroda at the Bank of Japan are missing their targets.

China has continued to alternate between squeezing and easing credit with the aim of keeping the economy on the rails ahead of the autumn National Congress. External trade figures have improved slightly, but this does not mark the start of a renewed export-led boom.

Read the full quartely economic outlook from John Greenwood

Important information

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Where John Greenwood has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual investment professionals.