Don't stop me now

Don't stop me now

An economic déjà-vu?

The answer to the question: “Where are we in the global economic cycle?” has almost become self-evident.

The world economy follows a classic economic cycle: it has now reached the expansion phase, after exiting a recovery mode, which was initiated by a credit-fueled stimulus in China in 2016 and the announcement of an ambitious tax cut program in the US in 2017.

The World economy is now expected to approach the peak of this current cycle, before slowing down from 2019 onward.

Yet timing till the peak differs across regions: we forecast one more year to go for the US, whose GDP growth should accelerate to +2.9% in 2018 as President Trump administration’s fiscal plan further stimulates the economy; the Eurozone is likely to register at least two more years of sound growth before decelerating more significantly (+2.3% in 2018 after +2.5% in 2017, and +2.0% in 2019), providing a unique window of opportunity to reform while surfing the ongoing momentum.

As for China, it is already handling its “soft landing”, with growth projected to decelerate from +6.9% in 2017 to +6.5% in 2018 and +6.2% in 2019.

 

What about companies?

They are reaping the benefits of this strong economic phase of the cycle.

Robust volume growth and better pricing power inflate turnovers. Companies are also able to continue strengthening their cash buffers.

Business insolvencies remain in check.They fall in Western Europe (-3%), Central and Eastern Europe (-3%) and North America (-2%), decelerate in Latin America (+2%).Asia Pacific significantly increases (+31%) due to forceful cleaning of ‘zombie’ companies in China.

Table 1 Key Euler Hermes/Allianz Research assumptions and forecasts for 2018 and 2019