How the Global Economy Fared in the Second Quarter

After years of disappointing rates of economic growth, the second quarter of this year has produced new-found hopes for a brighter near-term future for the global economy.  Entering 2017, hopes for stronger growth were tepid at past, as five years of relatively sluggish growth had dampened expectations for the global economy.  However, there were a number of positive developments in the second quarter, with many of the world’s largest economies performing as well, or better, than had been expected.  As a result, hopes are on the rise that the prolonged period of sluggish growth is coming to an end and that the world economy could grow at a faster pace than at any time in recent years.  However, it remains to be seen if the global economy can maintain the momentum that is has gained in recent months.  With significant risks facing many of the world’s most important economies, there are legitimate concerns that the positive results achieved the second quarter will prove to be short-lived and that the global economy will return to more sluggish rates of growth in the coming months.

Much of the optimism generated in the second quarter of this year stemmed from the improved economic results emanating from the world’s developed economies, a major change from the recent long run of disappointing results from many of the world’s leading developed economies.  The world’s largest developed region, North America, recorded much stronger economic growth in the second quarter, with the United States economy rebounding from a sluggish start to the year and with Canada recording its highest rate of economic growth in more than a decade.  In Europe, that region’s economic recovery continued, with the European Union’s rate of economic growth continuing to accelerate.  While Europe faces threats such as the impact of Brexit and the strengthening euro, rising domestic demand in Europe has raised hopes that a slowdown in that region can be averted later this year.  Solid economic growth was also recorded in most of the Asia-Pacific region’s developed economies, highlighted by the solid rate of economic growth recorded in that region’s largest developed economy, Japan, in the second quarter of this year.

While developed economies performed well in the second quarter, the performance of the world’s leading emerging markets was somewhat mixed.  On one hand, Asian emerging markets continued to outgrow their counterparts in other areas of the world.  For example, China recorded another quarter of near-7% GDP growth in the second quarter, defying expectations of a slowdown this year.  Likewise, most Southeast Asian emerging markets recorded respectable economic growth rates in the second quarter as that region remained home to some of the world’s fastest-growing economies.  On the other hand, the economy that was forecast to grow faster than any other in 2017, India, continued to struggle in the second quarter of this year, with growth falling to below 6% for the first time since 2014.  Outside of Asia, emerging market results were also mixed.  On the positive side, Central European economic growth rates soared thanks to rising demand levels in West Europe.  On the negative side, emerging markets in the Middle East and Africa continued to suffer as a result of low commodity prices, while most Latin American economies continued to struggle to generate much growth at all in the second quarter.  Overall, emerging market growth rates in the second quarter were decent, but major discrepancies among these economies persisted.

Thanks to the generally positive results in the second quarter, the outlook for the global economy has improved slightly.  Certainly, hopes have been raised that economic growth rates can continue to accelerate in the second half of this year, particularly as some of the world’s leading economies have significant room for growth.  For example, while the United States economy picked up speed in the second quarter, it still has significant capacity for higher growth in the months ahead, particularly if consumer confidence improves and a weaker US dollar leads to a major boost in export growth.  Many Asian economies also have the capability of growing at a faster pace in the coming months, most notably India, which has thus far significantly underperformed in 2017. 

Of course, there are also a number of significant risks that threaten to bring an end to the global economy’s solid recover this year.  For example, the rapid strengthening of the euro threatens to reduce that group of countries’ export competitiveness and derail the Eurozone’s economic recovery.  The world’s second-largest economy, China, also faces significant risks in the form of rising debt levels and major overcapacity issues, each of which could lead to lower rates of growth in the months ahead.  Finally, the specter of protectionism continues to hover above the global economy, threatening to significantly reduce global trade and investment.  As a result, while the recent results for global economy are welcome, it is likely that they signal a period of slightly stronger economic growth, rather than a major surge in growth.