Global Growth Outlook 02/2018

February 2018 GLOBAL GROWTH OUTLOOK

Back to four percent growth Global economic growth is gathering pace, with financial risks also rising



Global economy to pick up speed in 2018, growing by four percent.

Growth higher than it has been for seven years.



Tax reform set to drive growth in the US. The US tax reform will nudge real growth up by around 0.4 percentage points in the next two years. We expect the US to grow by 2¾ percent, China by 6¾ percent, Europe by at least 2¼ and Japan by a good one percent.



Global upturn will boost investment activity and global trade this year.

Investment activity expected to rise by over four percent, coupled with robust growth in industrial production.



Global demand for German products set to remain strong, bolstering German industrial output. German exports expected to grow five percent.



Regional growth prospects also brighter. Economic activity in Latin America, the Middle East and Sub-Saharan Africa to liven up considerably.



Major political risks persist. Major burdens on the global economy are rising protectionism, an unregulated Brexit, a rejection in many states of democratic systems of government, unsound financing and dwindling confidence in free trade and open markets.

Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Content Global economic growth projected to accelerate to four percent .......................................................... 3 Price acceleration, wages and productivity ........................................................................................... 4 Macroeconomic policy ........................................................................................................................... 6 Financial markets and exchange rates ................................................................................................. 8 World trade and oil prices ...................................................................................................................... 9 Foreign direct investment .................................................................................................................... 10 US: Additional growth through US tax reform – but for how long? ..................................................... 10 GDP forecasts for 2018 and 2019 upwardly revised following tax policy changes............................. 10 US labour market near full employment .............................................................................................. 11 Fed expected to continue tightening monetary policy in 2018 ............................................................ 12 China shows surprisingly high growth ................................................................................................. 13 Stability, reforms and new growth impetus ......................................................................................... 13 Debt only problematic in some areas .................................................................................................. 14 Market economy reforms still lacking .................................................................................................. 14 The US as a risk factor ........................................................................................................................ 14 Europe steps up growth further ........................................................................................................... 14 Upturn broadens, spreading to all member states and GDP components ......................................... 15 Inflation remains subdued with labour market slow to normalise........................................................ 16 Short-term risks drop, medium-term outlook remains subdued .......................................................... 16 Slight slowdown in Japan .................................................................................................................... 16 Regional outlook: Brighter prospects in Latin America, the Middle East and Sub-Saharan Africa ..... 16 Global industrial production gathers momentum................................................................................. 18 Production expands substantially in second half of the year .............................................................. 18 Industrial production in advanced economies ..................................................................................... 19 Industrial production in emerging economies...................................................................................... 20 Financial stability consolidating with upturn ........................................................................................ 21 Banks cutting down risks and government bond spreads falling ........................................................ 21 Chasing after yields leads to bubble formation ................................................................................... 21 Consequences for Germany ............................................................................................................... 22 Sources ............................................................................................................................................... 23 Imprint.................................................................................................................................................. 24

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Global economic growth projected to accelerate to four percent Global economic growth again picked up slightly in 2017 and is estimated to be 3.7 percent over the previous year, although the figures are not yet final. We expect the pace to accelerate still further in 2018, by a good quarter of a percentage point of GDP, to four percent over the previous year. Industrialised countries should see robust growth of a good 2Âź percent, with emerging and developing economies expected to grow by just under five percent (IMF 2018: 4.9 percent).

Forecast summary: Growth in real GDP 2017/18/19 in percent 2017

2018

2019

IMF1

OECD2

EUCOM3

IMF1

OECD2

EUCOM3

IMF1

World

3.7

3.64

3.5

3.9

3.74

3.7

3.9

3.64

3.7

USA

2.3

2.2

2.2

2.7

2.5

2.3

2.5

2.1

2.1

China

6.8

6.8

6.8

6.6

6.6

6.5

6.4

6.4

6.2

Japan

1.8

1.5

1.6

1.2

1.2

1.2

0.9

1.0

1.0

EU

2.3

OECD2

2.1

EUCOM3

1.9

Euro area

2.4

2.4

2.2

2.2

2.1

2.1

2.0

1.9

1.9

Germany

2.5

2.5

2.2

2.3

2.3

2.1

2.0

1.9

2.0

France

1.8

1.8

1.6

1.9

1.8

1.7

1.9

1.7

1.6

Italy

1.6

1.6

1.5

1.4

1.5

1.3

1.1

1.3

1.0

Spain

3.1

3.1

3.1

2.4

2.3

2.5

2.1

2.1

2.1

UK

1.7

1.5

1.5

1.5

1.2

1.3

1.5

1.1

1.1

India

6.75

6.7

6.6

7.45

7.0

7.5

7.85

7.4

7.6

Brazil

1.1

0.7

0.7

1.9

1.9

1.8

2.1

2.3

2.0

Russia

1.8

1.9

1.7

1.7

1.9

1.6

1.5

1.5

1.5

1: IMF (January 2018) 2: OECD (November 2017) 3: European Commission (November 2017) 4: Forecast on basis of 70 percent world GDP (PPP of 2013) 5: Information on India for the fiscal year in current prices

This means the global economy will return to average pre-crisis growth levels for the first time since 2012 (1987-2007: four percent). The IMF predicts 3.9 percent growth for 2018 and 2019 in its most recent outlook but, in our opinion, slightly underestimates growth in Europe (IMF 2018). The forecasts of the other international organisations are already somewhat older and do not take account of the trends in the latest figures or the latest US tax policy decisions. We are thus looking at a situation

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

where the great majority of advanced industrialised countries in Europe, America and Japan will be growing rapidly this year and the next, well above their potential output.

Most production, sentiment and sales indicators are clearly trending upwards. Furthermore, the course of 2017 has shown that Chinese policy decisions in 2016 had a positive impact on the East Asian commodity and mortgage markets and invigorated trade. Investment activity also picked up but not as much as one would have expected. Possible factors curbing investment here are financing difficulties in some countries, corporate balance sheets that have still not been cleaned up and only marginal impetus from competition and foreign trade policy (OECD 2017). Additional factors hampering momentum in almost all economies are demographic slowdown, weak factor productivity growth and the low degree of structural reform.

The two biggest changes since the summer are the brightening of economic prospects in Europe and the passage of the tax reform bill in the United States. While the economic upturn in Europe is now also spreading to investment activity, the US should see a substantial increase in real growth mainly due to the short-term impulses for private consumption, investment activity and the repatriation of foreign assets of US companies. We expect the US economy to grow by 2.7 percent this year (see also IMF 2018, Deutsche Bank Research 2018). Japan is also set to experience another good year for the economy. In China, on the other hand, it is remains to be seen whether the government will manage already this year to sufficiently curb economic momentum as planned. The country registered unexpectedly high growth of 6.9 percent in 2017. Some of the other major emerging market economies such as India, Russia and Brazil have stabilised as expected and have an outlook that is satisfactory or better.

Almost all forecasts believe the strong growth will continue through 2019. Although growth in the United States and China should slow down in the medium term over the next five years, US policy will keep its economy growing above potential until at least 2020, and a gradual slowdown in China is not yet on the horizon. In Europe, with the exception of the United Kingdom, many factors indicate very powerful growth for 2019 as well.

Price acceleration, wages and productivity Despite the increased economic activity seen in almost all regions of the world, the upward pressure on prices is still very subdued. Core inflation in industrialised countries particularly has barely budged.

In the US, core inflation is currently trending sideways, in the euro area it increased slightly in the course of last year but is still too low, while in Japan it dropped to near zero again. Prices only increased in the United Kingdom on account of the devaluation of the pound. Falling oil prices until the middle of year 2017 also kept prices down, with real wages rising in sum by around the same rate as productivity, thus resulting in a minimal pressure on prices. Smaller industrialised countries including Australia, Canada, Korea, Norway and Taiwan and major emerging economies also kept inflation down with currency appreciations against the dollar and falling oil and food prices. Inflationary tension was negligible even in China despite the high growth in lending, with core inflation stagnating at around two percent. In the major emerging and developing economies inflation dropped on average in 2017 to under three percent (IMF 2017). At least the oil prices for North Sea and Texan oil, which lead the market, have risen by more than 20 percent since last summer which will increase inflation.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

The chances for higher growth in prices and wages are meanwhile best in the US. Here, the economy is growing above its potential output, unemployment is low at only four percent and fiscal policy is still expansive, although this is not necessarily appropriate from an economic perspective. Wages are likely to increase by up to four percent both this year and the next. The United States will probably be the first country to build up significant price pressure. It is still very uncertain just how strong the pressure on prices will be or whether labour is in such short supply that this will impact on wages, especially as the participation rate on the labour market still shows considerable room for improvement compared to levels recorded in the past.

Throughout much of Europe, on the other hand, there is still sufficient slack for higher growth in output before this triggers an increase in prices. Inflation is still very restrained even in countries with strong above-potential growth, such as Germany. Core inflation in the euro area was at only one percent in January 2018, with inflation at 1.3 percent. Nor did the rising producer and energy prices in dollars in the last few months bring up inflation, due in part to the appreciation of the euro and in part to narrowing margins (ECB 2017).

In an international comparison, price trends are showing some similarities. Commodity prices have actually fallen in some major economies including the US and Japan, while rising slightly in the euro area. The prices for information and communication technology and some services have also dropped in many countries, with recent price drops in healthcare and financial services in the US and in real estate services in Europe. It is hardly surprising then that analysts are only forecasting core inflation to rise to a satisfactory level of around two percent in 2019 for the US and possibly also for the euro area from late 2019 (OECD 2017).

In terms of wage increases, Japan was ahead of the euro area and the US in 2015 and 2016, but the US is set to overtake Japan and the euro area in the next three years. Although employment is increasing steadily in the euro area and in Europe, and Japan and the US are already close to full employment, disposable incomes have not increased substantially in any region. A number of structural changes on the labour market have relieved the upward pressure on wages. These changes include a reduction in the number of men working fulltime, involuntary unemployment and part-time employment, an increase in the proportion of working women and an above-average increase in low-skilled jobs (OECD 2017).

Investment activity is gathering pace across the globe but has yet to have a strong and invigorating impact on productivity. The OECD (2017) is therefore expecting investments to continue flowing excessively into financial assets and too little into real investments to increase productivity. Given the general lack of political impetus to intensify product market competition, expand free trade and step up real investment, this trend will keep the improvement in the standards of living for broad sections of the population clearly below potential in both industrialised and emerging economies.

Instead, financial risks are on the rise, in selected emerging economies such as China and Turkey, in particular, but also in some asset markets in industrialised countries. Indicators that measure volatility on the markets have been at record lows for the last few months. The Shiller CAPE Index, the cyclically adjusted price earnings ratio, meanwhile has got back to a level of 33 in the US, which in the years 1929, 1981 and 2000 was accompanied by larger corrections. The extended period of low interest rates and changes in corporate financing, particularly the strong trend in share buybacks, has however altered the picture. The situation on the bond market is similarly high-risk, where problems could rapidly

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

arise in case of unexpected inflation developments or interest rate hikes by the major central banks (IMF 2017, Shiller 2018, Frenkel 2017).

CAPE-Index* 50

18 2000

45

16

1981 40

14

35

1929

12

Price-Earnings Ratio (left axis)

30

10

1901

1966

25

8 20 6 15

Long-Term Interest Rates (right axis)

10

4

2

5 1921 0 1860

1880

1900

1920

1940

1960

1980

2000

2020

0 2040

*Cyclically Adjusted Price-Earnings-Ratio or Shiller Index for the cyclically adjusted ten-year price-to-earnings ratio of the S&P Composite Stock Price Index Source: Yale Universität

Macroeconomic policy In 2015 and 2016 the fiscal policy of almost all major economies with very few exceptions was largely neutral. The OECD expects slight fiscal easing in the major economies over 2017-19 of around half a percentage point of economic output. This general trend is expected to become slightly more heterogeneous in 2018. The United States is driving an expansionary course, and Germany is also expected to set expansionary impetus overall during the legislative term. In China, the policy measures adopted in 2017 continued to stimulate the economy while at the same time restrictive countermeasures were taken by financial market policy. This year, China’s fiscal policy will be neutral.

Japan, France and Spain, on the other hand, are all set to tighten up slightly, while fiscal policy in many of the smaller economies will be moderately expansionary.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Monetary policy across the world is moderately expansive overall, especially as inflation is again set to remain below target for the leading central banks in 2018. Many of the major economies have started to adjust their monetary policy to the improved economic situation as the targeted inflation remains difficult to reach.

In the course of 2017, the US Federal Reserve in particular managed to adopt interest rate changes while at the same time, in October 2017, initiating a phase-out of unconventional monetary measures without causing upheaval on the markets. The complete phase-out of quantitative easing measures is likely to take a few years yet and the transition will be characterised by continued debate over the right course for monetary policy (OECD 2017). In view of the full employment situation, additional fiscal impetus and rising wages, the Fed is expected to continue tightening its monetary policy this year and may surprise the market by running an even tighter course than the three interest rate hikes already signalised by the Fed. In view of the substantial analytic uncertainties regarding the drivers of inflation and the Phillips curve, the course adopted by the new Fed head is hotly controversial.

Despite fierce debate, the European Central Bank managed to firm up expectations that it would run a very gradual course to curb monetary stimuli and has also driven down the level of unconventional measures. In late January, President Draghi again underlined that the ECB would maintain its course for the time being on account of increased exchange rate volatility, unchanged inflation expectations and brighter economic prospects (Draghi 2018). The ECB will review its position in March based on new projections. Given the persistently high level of unemployment in the euro area, real short-term yields of minus two percent and real long-term yields of just under zero are still expedient in order to support the financing terms for the real economy up until the labour market has really firmed up and price trends have normalised (see also European Commission 2017).

The Japanese central bank is still holding on to its course, as inflation rates in the Japanese economy are still treading water due to insufficient wage developments. Criticism is mounting that the massive quantitative measures and equally massive fiscal stimuli (amounting to six percent of GDP) have failed to have the intended affect. Although Japan has been growing a good one percentage point above its output potential for some years now, core inflation (without volatile unprocessed food and energy prices) recently dropped back down to 0.3 percent (Deutsche Bank Research 2018b, Ito 2018). It remains to be seen whether the big companies will follow the call of the Abe government to increase wages by three percent. The forward guidance approach, giving market participants clear indications of future inflation rates, has also not proven much of a success. Rising global demand will at least help increase the pressure.

China is running a rather restrictive monetary course and has tried to massively restrict the supply of money to the commercial banking system due to serious problems of lending overheating. The government is expected to continue this course in 2018, particularly in view of the fact that the overall level of financing of the economy in 2017 was still a thundering 25 percent higher than the previous year. Partial easing in lending to the real estate industry is still conceivable if consolidation makes headway here. Other major emerging economies, on the other hand, can now afford to gradually ease their monetary policy.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Financial markets and exchange rates There were no major changes on the financial markets in the last six months. On the bond markets, yields for ten year government bonds should continue to increase in the course of the year in the US and Europe, nudging up to the three percent mark in the US while heading towards the one percent mark in Europe. In the euro area and Japan, more than half of bonds are still at sub-zero yields.

Furthermore, risk premiums have dropped steeply in the euro area, which is certainly due in part to the bond purchases of the ECB. In the last six months, moreover, corporate bonds traded globally with very low risk premiums. The volume of newly issued bonds in the US has increased sharply in the last three years and has now reached a volume of 4.5 percent of GDP. The volume in the euro area and in Japan has stood at around two percent of GDP since 2009. In Europe, the proportion of companies with capital market financing has doubled since 2009 (European Commission 2017).

On the stock markets, a comparison of the main indexes until the end of January 2018 puts the US (S&P500: up 20 percent, NASDAQ: up 30 percent) and Japan (Nikkei: up 19 percent) clearly ahead of Europe (EuroStoxx50: up six percent, Stoxx Europa 600: up seven percent) and China (Shanghai Composite: up eight percent), which both grew by less than ten percent. The upward potential will chart a different picture in the next few months in view of the increasing political stimuli in the US and reduced stimuli in China. In Europe, the economic upturn should trigger impetus. Overall, the valuations in Europe and Asia have not yet conclusively reached higher-than-average levels, while in the US with price-earnings ratios of around 25, valuations are very high.

The foreign exchange markets were affected in particular last year by uncertainties regarding US policy, leading to considerable adjustments in currency ratios. The dollar depreciated by seven percent on a trade-weighted basis in 2017, so much so that US treasury secretary Mnuchin moved away from the usual strong dollar rhetoric.

The external value of the euro has risen by around seven percent against the dollar in the last six months. Buoyed by good economic data, higher political stability and market expectations regarding ECB policy it reached a three-high year of 1.25 against the US dollar in late January. The yen is also trending upwards and has already appreciated by four percent against the dollar since the beginning of 2018. The renminbi has appreciated eight percent against the dollar since May 2017. On a tradeweighted basis, the Canadian dollar, the euro and the renminbi have all increased in value whilst the British pound, the Japanese yen, the Indian rupee and the US dollar have slipped.

The key euro-dollar exchange rate could adjust with a slight appreciation of the dollar in the next six months in view of the growth and yield advantages reversing in favour of the US and the flows of repatriated capital. However, the future development of this central exchange rate remains highly uncertain in the foreseeable future. If the external value of the euro continues to increase substantially, this will additionally weaken the already low price pressure in the euro area, thus further jeopardizing the monetary targets of the ECB in the medium term.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Exchange rates against the US dollar

1.30 1,30

0.85 0,85

1.25 1,25

0.80 0,80

125

7.0 7,0

120

6.9 6,9

6,8 6.8

115

1,20 1.20 0.75 0,75

6.7 6,7 110

1.15 1,15

6.6 6,6

0.70 0,70 1.10 1,10

105

1.05 1,05 1,00 1.00

6,5 6.5

0,65 0.65

100

6,4 6.4

0,60 0.60

95

6.3 6,3

Euro Achse) Euro(linke (left axis)

Renminbi(rechte (right axis) Renminbi Achse)

PoundSterling Sterling(rechte (right axis) Pfund Achse)

Yen Achse) Yen(linke (left axis)

Source: Macrobond

In general, the international organisations have recently emphasised that first indications are emerging that risks have been underestimated on some market segments, thus increasing the potential for knock-on repercussions and economic risks, especially as monetary policy gradually tightens up. In China the risks are, above all, the shadow banking system and corporate and household lending, which is still expanding too fast.

World trade and oil prices The worldwide increase in production and investment activity contributed to a very pronounced recovery of global trade already in 2017, particularly for interim products.

According to International Monetary Fund estimates, world trade last year increased by 4.7 percent over the previous year and is expected to grow by a further 4.7 percent this year, 0.6 percentage points higher than predicted by the IMF back in autumn. Preliminary figures from the Netherlands Bureau for Economic Policy suggest that world trade increased by a solid 1.3 percent over the previous quarter in the third quarter 2017. Growth in the third quarter was driven primarily by a rising demand for imports in emerging economies and by rising exports, also primarily in emerging economies. The RWI/ISL Container Throughput Index, which measures the volume of global trade based on the capacity utilisation of key container ports around the world, reached a high level in December 2017 (130.6) after rising 5.4 percent in the course of the year overall, thus marking an end of the period of relatively weak growth in global trade registered by the index in 2015 and 2016.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

The European Commission is also predicting EU exports to grow by between four and four and a half percent and EU imports to increase by 4.4 to 4.7 percent over 2017-19. It believes this reflects strong global demand, which is expected to push up volumes while slightly shrinking export margins, especially given that the Commission predicts the euro to appreciate on a nominal trade-weighted basis by six percent over the two-year period 2017/18 (European Commission 2017).

Producer prices are expected to increase very moderately in the meantime while oil prices are set to drop slightly in the course of the year despite the strong global economy due to high supply.

Foreign direct investment In 2017 global cross-border investment flows dropped by 16 percent over the previous year, down to 1.5 trillion US dollars, according to UNCTAD. Investment flows thus trended against other global economic indicators such as GDP growth and global trade. The drop in investments was triggered above all by a slump in investment flowing into industrialised countries, which was more than one quarter below the previous year’s level (down 27 percent). Investment both to Europe (down 27 percent) and the US (down 33 percent) fell sharply. Investment to the United Kingdom suffered in particular, crashing down 90 percent against the previous year. Investment in emerging economies, on the other hand, was up by eleven percent in 2017. The US nonetheless retained its position as the top destination for foreign investment (311 billion US dollars), followed by China (229 billion US dollars) and the Netherlands (68 billion US dollars).

US: Additional growth through US tax reform – but for how long?

GDP forecasts for 2018 and 2019 upwardly revised following tax policy changes In 2017, US GDP grew by 2.3 percent overall, thus clearly exceeding the previous year’s growth (1.6 percent). After a weak first quarter, the economy picked up in the course of the year. The US Bureau of Economic Analysis estimates growth in the fourth quarter of 2017 at 2.6 percent. Private consumption expenditure, residential and nonresidential fixed investment and exports all contributed positively towards fourth quarter growth, with private inventory investment and higher imports, in contrast, pulling growth down. The main force driving growth overall in 2017 was private consumption. The rate of investment measured as private investment in proportion to GDP rose in the course of the year from 16.4 percent (first quarter 2017) to 16.5 percent in the second and 16.7 percent in both the third and the fourth quarters.

For the year 2018, the IMF had forecast 2.3 percent growth back in autumn 2017. The outlook has now changed following the tax reform that was passed in December 2017. The IMF and Deutsche Bank Research are now expecting growth as high as 2.7 percent. The IMF’s forecast for 2019 also factors in substantial momentum from the tax reform. The IMF upwardly revised its forecast of 1.9 percent from October 2017 to 2.5 percent in January.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

USA: Growth contributions to GDP in percentage points 5

4 3.1

3.2 3

3.2

2.8

2.7

2.6 2.2

2

1.8 1.6 1.2

1 0.5

0.6

0

-1

-2 I

II

III

IV

I

2015 Private Consumption

II

III 2016

Investment

Net Exports

IV

I

II

III

IV

2017 Public Consumption

GDP Growth

*annualised quarterly figures Source: U.S. Bureau for Economic Analysis

The tax reform will temporarily invigorate private consumption and corporate investment in particular.

It will also trigger the repatriation of foreign assets of US companies. This explains the higher GDP growth forecast for the next few years. In the longer term, however, the US economy is expected to drop back down to lower growth rates as the tax reform will also lead to further increases in the country’s budget deficit and current account deficit. Without factoring in the positive impact on growth of the tax policy changes, DB Research estimates that the reform will increase the household deficit by 1.5 trillion US dollars in the next ten years. Furthermore, the tax reform will benefit above all the more affluent households, who tend to save the resulting additional disposable income rather than increasing their consumption. At the same time, the tax reform is likely to push up the value of the currently relatively weak US dollar which would have a negative effect on the trade balance.

US labour market near full employment Unemployment has continued to fall in the last few months, going down to 4.1 percent in October 2017 where it has stayed since. The US labour market is thus close to full employment. The number of longterm unemployed – classified as individuals who have been unemployed for at least 27 weeks – dropped further in the second half of the year, reaching 1.52 million in December. One year previously, in December 2016, there were 1.87 million long-term unemployed. In December 2017, the proportion

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

of the unemployed who are long-term unemployed was 22.9 percent. The average period of unemployment was 23.6 weeks, down from 25.9 weeks in December 2016.

One would expect close to full employment to trigger an increase in wages, which would, in turn, pull up prices. Yet despite the low level of unemployment it is not quite clear how scarce the supply of labour on the market really is. The labour market participation rate, or the proportion of the population that has a job or is actively seeking work, was at 62.7 percent in December 2017. In contrast to the rate of unemployment, which has been decreasing steadily for the last few years, the participation rate has remained relatively stable at well below pre-crisis levels of around 66 percent (2007). These figures indicate that a section of the population has withdrawn from the labour market and is not benefiting from the current upturn.

Fed expected to continue tightening monetary policy in 2018 The Fed hiked up the interest rate incrementally three times last year, most recently in December 2017 by a quarter percentage point to a target range of 1.25 to 1.5 percent. In October 2017 the Fed also began to gradually reduce the stockpile of bond assets it had been accumulating since the crisis. In January 2018 the US Senate confirmed the nomination of Jerome Powell as future Federal Reserve Chair. Janet Yellen’s term in office ended on 3 February 2018. Powell has served as a member of the Board of Governors at the Fed since 2012. Under his leadership, the Fed is expected to continue the monetary policy of his predecessor, gradually increasing the key rate.

The course of budgetary policy and its impact on the US economy is not yet entirely clear. The US fiscal year 2018 already started on 1 October 2017. Usually, the US Congress passes a budget resolution before the new fiscal year commences on 1 October. This year, however, Congress and the US president have so far failed to agree on the allocation of federal funds for the current fiscal year, and have instead merely agreed a continuing resolution as a stopgap measure – initially until 8 December 2017, then to 19 January 2018 and currently until 8 February 2018. Between 20 and 22 January there was a brief government shutdown before the renewed agreement was passed. Federal authorities and other federal institutions had to stop working as their financing had expired. The Democrats tied their approval of another interim financing to a resolution of the dispute on the future of the DACA (Deferred Action for Childhood Arrivals) programme. This programme had previously granted young adults who had entered the US as children of illegal immigrants, so-called dreamers, protected status in the US. President Trump had announced his decision to end the DACA programme in September 2017. The Democrats voted for the interim financing proposal in exchange for a promise from Senate Majority Leader Mitch McConnell that the Senate would initiate stand-alone immigration legislation within the following weeks. The government shutdown ended on the morning of 22 January. As well as reaching a deal on the federal budget, Congress must also negotiate an agreement to raise the debt ceiling.

The debt ceiling was initially suspended until 8 December then lifted to the current debt level on 9 December. Since then, the US treasury has been using what it calls “extraordinary measures” to finance the government. US treasury secretary Steven Mnuchin has called on the Republican leadership in Congress to increase the debt ceiling by the end of February. The Congressional Budget Office (CBO) estimated in November that the treasury would be able to secure the financing of the government until about the end of March/beginning of April 2018.

A long-term solution to resolve the budget dispute may involve increasing state expenditure for defence and other items, which would jack up GDP. Investment in infrastructure is also on the agenda for 2018.

The situation would become perilous if the current fiscal policy – the tax reform and possible increases

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

in expenditure – stimulate overall economic demand to such an extent, without increasing the supply side, that wages and prices shoot up. This would force the Fed to increase the key rate faster than planned, which would heighten the probability of another crisis on the financial markets.

China shows surprisingly high growth China outperformed most forecasts last year with surprisingly high growth of 6.9 percent, fuelled partly by strong monetary and fiscal stimuli. The National Congress of the Communist Party decided to continue stimulating qualitative growth based on domestic demand and services. This will be accompanied by capacity cuts in the coal and steel sectors, more stringent regulations in the financial sector and an incremental reduction of state investment in real estate and infrastructure, which may slow growth down in 2018. In real terms, economic output is set to grow at a slightly more modest pace of 6¾ percent, levelling off at 6½ percent in the medium term, without factoring in any external effects. Monetary policy reactions by the government are possible this year and the next. If the US signalises more interest rate hikes, China would have to respond accordingly.

Most indicators were also positive. Public sector investment grew by 10.1 percent. The private sector, which accounts for over 60 percent of the investment volume, further consolidated its position, growing by six percent. The business climate remains favourable. In December, the official Purchasing Managers Index (PMI) was at 51.6 points for manufacturing and 55 percent for services, which indicates an expansion of economic activity. Industrial production increased by 6.6 percent, including an impressive 68.1 percent growth in the production of industrial robots and 51.1 percent growth in new energy vehicles (NEV). Nominal retail sales increased by 10.2 percent, with online sales alone shooting up 32.2 percent.

Inflation at 1.6 percent was well below the target rate of three percent, caused in part by falling food prices. Stronger inflation is expected in 2018. Producer prices increased by 6.3 percent in 2017, driven above all by rising commodity prices. The real estate market is currently cooling down further, curbed by regulatory measures and higher interest rates for mortgages. In foreign trade (calculated in US dollars), imports surged by 15.9 percent and exports increased by just under eight percent. Political disruptions are on the horizon for 2018, as the persistently high export surplus against the US is burdening trade relations between the two countries.

Stability, reforms and new growth impetus As the “new normal” takes hold, concerns about a hard landing have gradually died down. While a big infrastructure stimulus peters out this year, the Belt and Road Initiative is slowly starting to pick up speed, despite a series of small setbacks. Further growth impetus could come from new export markets. The government must press on with deep-reaching reforms nonetheless. The main component of current economic policy is supply-side structural reform, with a focus on eliminating surplus capacities and excess housing stocks and cutting corporate debt. Plans are to increase production efficiency with a stronger focus on more complex components and high-end products. The reform of state-owned enterprises is only progressing slowly due to the potential social consequences and excess capacities have not been fundamentally reduced so far. A series of mergers has led to a slight consolidation of the state-owned enterprise landscape and many polluting companies have been closed down or their production scaled back as a result of more stringent environmental regulations.

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Debt only problematic in some areas Despite regulatory intervention, total debt is still rising and is currently at over 250 percent of GDP. It could reach 300 percent by 2022. As a large proportion of the debt is concentrated on the domestic market and the state is both lender and borrower, the government has a wide scope for intervention.

The risks in the public and municipal sectors are thus still contained. In the private sector, however, non-performing loans and the resulting snowball effects could become a risk to the system and thus also impact on foreign economic and financial flows. The high foreign currency reserves continue to have a positive effect and had again grown to over three trillion US dollars by the end of the year.

Market economy reforms still lacking The Communist Party emphasised at its last congress that it will seek to further control the economy, dampening hopes for market economy reforms. It remains to be seen whether the state interventions in the market and on corporate decision-making have a negative impact on the investment climate.

The government has not yet followed through on its pledges to increase free trade and further open up its markets. The situation for foreign companies has, in fact, partly deteriorated, with non-tariff trade barriers increasing.

The US as a risk factor Indications of a shift in US policy towards China are currently growing. The trade deficit continued to increase in 2017. The main points of American criticism of China is its interventionist state capitalism, forced technology transfer as a condition for market access and its mercantilist approach to foreign trade. Stronger measures taken by the US government could have a negative impact not only on trade and investment but also on foreign companies with investments in China and could ultimately lead to shifts in trade and financial flows.

Europe steps up growth further Growth accelerated strongly last year in both the EU and the euro area, at 2.3 percent and 2.2 percent respectively (European Commission, 2017). In late 2016, GDP growth for 2017 was forecast to be much lower with 1.6 percent for the EU and 1.7 percent for the euro area (European Commission, 2016). The European economy has proved itself remarkably unfazed by uncertainty factors such as the UK referendum and election results in the big member states. Growth in 2018 is expected to remain strong with 2.1 predicted for both the EU and the euro area. The OECD (2017) also forecasts 2.1 percent growth for the euro area, while the ECB (2017b) anticipates 2.3 percent and the IMF 2.2 percent in its latest outlook (2018). The institutions expect growth to slow down slightly, to around two percent, in 2019. The latest available data on growth show momentum continuing. In the fourth quarter, both the EU and the euro area increased GDP by 0.6 percent over the previous quarter. This follows on from 0.7 percent growth in both preceding quarters.

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Growth in real GDP in the EU in percent 4 3.0 3

1

2.0

1.8

1.7

2

2.3

2.3

2.1

0.3

0.4

0 -0.4

-1 -2 -3 -4 -4.3

-5 -6

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 2007

2008

2009

2010

change over ggü. previous year quarter Veränderung Vorjahresquartal

2011

2012

2013

2014

2015

change over previous quarter Veränderung ggü. Vorquartal

2016

2017

change over ggü. previous year Veränderung Vorjahr

Source: Macrobond

Upturn broadens, spreading to all member states and GDP components The upturn in 2017 was fuelled by the continued recovery in the global economy and consistently strong domestic demand. Private consumption rose by around two percent and public consumption by 1.2 percent. Investments are still pointing up as well. While investment levels EU-wide actually dropped between 2008 and 2013, they have risen by around three percent each year from 2014 to 2016 and are estimated to have grown by just under four percent in 2017 (European Commission, 2017). EU exports grew by slightly less than five percent in 2017. The recent upward trend in the valuation of the euro has so far not caused any real problems for the euro area economy thanks to the favourable global economic situation. Sentiment in the European economy is very positive overall. The ifo Business Climate Index for the euro area and the Purchasing Managers Index were at record highs of 27 and 60.6 respectively at the end of 2017. In the course of 2017 the upturn has spread to all member states with all countries in the EU registering growth for the first time since the crisis. While Greece still contracted slightly in 2016, it was back to growth in 2017, expanding by 1.6 percent. The countries in the EU with the highest growth were Malta and Romania, which both saw more than five percent growth. At the other end of the scale was the United Kingdom, which only managed an increase of 1.3 percent.

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Inflation remains subdued with labour market slow to normalise The upturn in Europe is being bolstered by the expansive monetary policy of the ECB and favourable financing terms. Despite considerable monetary impetus, the rate of price increase and increase in wages remains weak. Inflation in the euro area was at 1.5 percent in 2017 and is expected to drop slightly to 1.4 percent in 2018. The output gap was slightly negative in 2017, but will turn positive from 2018. In October 2017 the ECB cut its bond purchasing programme from 60 down to 30 billion euros a month until at least September 2018. The labour market is still firming up further but has not yet returned to pre-crisis conditions. Unemployment in the EU was at 8.2 percent in 2017 and should drop by half a percentage point this year. The low gains in real wages of just 0.3 percent in 2017 and an expected 0.9 percent in 2018 reflect both the low productivity gains of a meagre one percent and the persistently high levels of unemployment in some member states (European Commission, 2017).

Short-term risks drop, medium-term outlook remains subdued Short-term risks have dropped on account of the broadening nature of the upturn. The medium-term risk analysis, however, remains unchanged. In view of the good economic situation, the willingness to press on with structural reform remains low in many EU countries. A more enthusiastic approach to reforms is needed above all in the labour market and in insolvency legislation as well as service sector deregulation. Progress in the deepening of the Economic and Monetary Union has also been limited.

The longwinded coalition negotiations in Germany have delayed important decision-making at the EU level. Medium-term risks for the EU economy are the gradual normalisation of monetary policy demanded by a number of central banks. The protectionist trends of key trade partners remain a threat to the very open EU economy. The current uncertainty surrounding the outcome of the exit negotiations of the United Kingdom from the EU still harbour risks even though the second round of negotiations officially commenced in December 2017.

Slight slowdown in Japan Japan’s economy has surpassed expectations in the last two years. A certain degree of normalisation is expected to set in this year, given that domestic demand in particular is trending down, positive consumption will hardly rise, public investment will be reduced and private investment activity is likely to lose some momentum. Wages and prices have not increased substantially either. Industrial production and exports however are still exhibiting robust growth. We concur with the 1.2 percent growth forecast of the international organisations for the Japanese economy this year.

Regional outlook: Brighter prospects in Latin America, the Middle East and Sub-Saharan Africa The global economic recovery in the second half of 2017 was also more pronounced than in the first half year for the majority of emerging and developing economies (IMF 2017, 2018, OECD 2017, Deutsche Bank Research 2018c). A significant upswing is however only expected for South America and the Middle East.

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Regional economic outlook* 2018 South America

1.6

Central America

3.9

Caribbean

4.4

Asia-Pacific, advanced economies1

1.7

Asia-Pacific, developing economies2

6.5

CIS-States3

2.2**

Middle East, North Africa, Afghanistan, Pakistan

3.6**

Israel

3.4

Sub-Sahara Africa

3.3**

1Japan, South Korea, Taiwan, Singapore, Hong Kong, Australia, New Zealand, Macau 2 including China and India 3 Russia, Ukraine, Georgia, Turkmenistan, Caucasian and Central Asian States * Growth of real GDP over previous year in percent Source: IMF (October 2017 and **January 2018)

The upswing will initially be seen primarily in South America, Central America, the Caribbean and Mexico. The IMF has upwardly revised its growth outlook for the region by more than half a percentage point from around 1.3 percent per year in 2017 to 1.9 percent this year and 2.6 percent in 2019. Brazil, in particular, should grow by at least two percent in both years. The economy was already invigorated in 2017 by a record harvest and stimulus for private consumption although the continuing political squabbles are hampering development. The upturn has firmed up in Argentina with all components contributing to growth, although high interest rates to keep inflation under control and tight fiscal policy are factors curbing growth. In Venezuela, economic activity is expected to deteriorate further, pulling the regional outlook down severely. Chile and Peru, on the other hand, are heading for robust growth (Chile: over three percent; Peru: a good four percent) while Columbia has initiated a row of measures to induce additional growth, so 2½ percent growth is not unrealistic. North-American Mexico seems to be coping better with the risks surrounding its relations with the US and should see its pace of growth in 2018 increase by a good 2Ÿ percent. Exports and investments are driving the Mexican economy forward, while private consumption is faltering due to a somewhat excessive level of inflation. Fiscal policy is also keeping the lid on growth as the Mexican government pursues its path of budget consolidation (OECD 2017).

Canada has had a two-year period of economic growth. The economy is estimated to have grown by a powerful three percent in 2017 but growth is likely to level off at just over two percent this year and the next.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

In the majority of Asian-Pacific countries the economic outlook is trending sideways, although on a high level of 6½ percent. India is estimated to have grown by 6.7 percent in 2017, the ASEAN countries by 5.3 percent, the emerging and developing economies in the Asian-Pacific Region by well over 6½ percent. India grew slightly less than expected but growth should return to over seven percent this year and next on the back of structural reforms. A rising demand for goods from the ASEAN region should keep prospects bright, with a good 5¼ percent feasible for 2018 and 2019. The outlook for Vietnam and Malaysia is slightly above average, while slightly below average for Indonesia, the Philippines and Thailand. As for the industrialised nations, the Australian economy should pick up growth to over 2½ percent following a weak 2017 due to bad weather and mining conditions; economic activity is also gathering pace in New Zealand. South Korea is, in contrast, expected to see its economy slow down to around two percent. Hong Kong, Singapore and Taiwan all benefited from the unexpectedly strong growth in China in 2017 but will probably have to make do with growth rates of between two and three percent in 2018 and 2019.

Economic activity in Russia and the CIS states is largely moving sideways. Russia’s economy is not expected to accelerate, although the picture is looking somewhat brighter in the smaller Caucasian and Central Asian states. The IMF is expecting a good two percent growth in the region for this year and next. Russia has at least now based its budget calculations on an oil price of 40 US dollars and is channelling the additional revenue into sovereign wealth funds. Private consumption is being buoyed by increased bank lending, but investment activity remains weak. The situation may improve with monetary easing possible in the course of the year.

Economic growth is expected to pick up substantially this year in the Middle East, North Africa, Pakistan and Afghanistan. The IMF expects to see growth increase by a good one percentage point to 3.6 percent and to remain at that level in 2019. The upturn is being fuelled in particular by increased domestic demand among net oil importing countries, while net oil exporting countries in the region are not expected to pick up on account of the extension of the production caps agreed between OPEC and Russia until the end of the year. Saudi Arabia is set to grow by a good 1½ percent however. Pakistan is being carried by Chinese investment and swift lending policies and should grow by over five percent, while Egypt is on course for four percent growth. The countries of Sub-Saharan Africa, following a weak 2017 with only 2.7 percent growth, are expected to accelerate by a good half percentage point to around 3½ percent growth this year and next. South Africa’s economy is still mainly treading water, stagnating at below one percent growth. Nigeria, on the other hand, should get back to over two percent growth following a weak performance in 2017.

Global industrial production gathers momentum Production expands substantially in second half of the year Global industrial production is going to grow by more than three percent for the first time since 2014.

According to the figures of the Netherlands Bureau for Economic Policy Analysis (CPB), industrial production in the first eleven months of 2017 was up by 3.4 percent over the same period the previous year. The momentum of the beginning of 2017 accelerated further in the second half of the year, with global industrial production expanding by well over three percent month after month. The upward trend should continue through the current year. The Purchasing Managers Index for manufacturing indicates that growth will continue to gather pace. The index most recently increased for the seventh time in a

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

row reaching a new annual high in each of the last five months. If output levels will be maintained, total output for 2017 will increase by 3.5 percent overall.

In the previous two years, the growth impetus has emanated exclusively from the emerging market economies while industrial production more or less stagnated in the advanced economies. This trend turned around in the middle of 2017, when industrial production started to rise substantially in the advanced economies as well. For the year overall, output is estimated to have grown by just under three percent, the highest growth seen since 2010. Industrial production in the emerging economies has risen every year by somewhat more than three percent since 2014. Growth accelerated somewhat more in 2017, but based on the course of the year so far, the increase in output for 2017 is likely to remain under the four percent mark.

Industrial production in advanced economies Broad-based upturn Following a period of close to zero growth in the previous two years, industrial production in advanced economies experienced a robust recovery last year. Industrial activity has steadily pointed upwards since the second half of 2016 and the upward curve has been markedly steeper since mid-2017.

Industrial production* in advanced economies other advanced economies restliche entw. Volkswirtschaften 5

Euro area Euroraum Japan

4

USA

3

2

1

0

-1

-2

-3 2013

2014

2015

2016

2017

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Netherlands Bureau for Economic Policy Analysis (CPB), own calculations

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Since then, industrial production has risen by more than three percent year on year every month. Output in the first eleven months of 2017 was up 2.8 percent compared to the same period the previous year.

While industry in the United States and in Japan was still struggling with production drops in 2015 and 2016, the upturn has taken a broader hold now. Industry in the euro area stepped up its production by more than three percent in the second half of the year. With the strong rate of growth recorded in the last two quarters of the year, production is likely to have increased by an estimated 2.6 percent in 2017 overall. In the US, industrial production increased for four successive quarters year on year. For 2017 as a whole we expect industrial production to have increased by just under two percent. In Japan industrial production is even thought to have grown by over four percent in 2017, expanding strongly in the second and third quarters of 2017 in particular. Japan’s industry thus makes a similar contribution to growth as the US industry even though it is only half the size. Industrial production in the other advanced economies has now been on the rise for 18 quarters in succession. With an increase of an estimated 3.8 percent, industrial production in these countries grew only slightly less than in Japan.

Industrial production in emerging economies Asia as driver of growth while industries in Latin America disappoint Industrial production in the emerging economies is set to grow more strongly than in the two previous years. Based on figures for the first eleven months of 2017, we expect output to have increased by 3.7 percent overall compared to 2016.

Africa/Middle East Afrika/Mittlerer Osten

Industrial production* in emerging economies

Latin America Lateinamerika Central and Europe Zentralund Eastern Osteuropa 14

Asia Asien

12 10 8 6 4 2 0 -2 -4 -6 2013

2014

2015

2016

2017

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Netherlands Bureau for Economic Policy Analysis (CPB), own calculations

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

The Asian emerging economies expanded their production by 5.4 percent and thus contributed more than 90 percent of growth. Industrial production is also on the rise in Africa and the Middle East, although the increase of 1.5 percent in 2017 was only half that of 2016. The latest figures actually point towards a slight dip in production. In Central and Eastern Europe growth in the second half of the year failed to maintain the high rates of growth seen in the first half of 2017, bringing the increase in production for the year overall down to only 1.8 percent. In Latin America increased production towards the middle of the year seemed to indicate that the recession had come to an end. However, the momentum of the summer months could not be sustained and industrial production dipped again slightly in the fourth quarter, meaning that production in 2017 overall slipped 0.1 percent.

Financial stability consolidating with upturn The low volatility on the financial markets is largely the result of improved prospects for future real economic growth. The continued expansive monetary policy of many central banks is helping to stabilise the bond and stock markets. Many stock and bond prices have risen to new (post-crisis) record highs. The temporary turbulences on the markets were partly due to the increase in exchange-traded funds, or ETFs, which increased by 27 percent last year and now account for five percent of global market capitalisation. These indexed funds make fluctuations more pronounced if the securities on which they are based are less liquid than the ETFs themselves (OECD 2017).

Banks cutting down risks and government bond spreads falling The euro area banking sector was able to achieve some progress in consolidation last year. The proportion of non-performing loans in the euro area is nonetheless still high at 5.7 percent in 2017 (IMF 2017a). The non-performing loans are concentrated to a huge extent in a few countries, above all Italy.

The biggest risk for many advanced economies is the high level of private debt that has continued to rise further in many countries. In relation to GDP, private debt in the euro area, the US and Japan is at between 150 and 160 percent (ECB, 2017c). The situation is even more dramatic in China where private debt has increased from 120 to over 210 of GDP in the last ten years. While higher private debt does not necessarily directly affect the financial stability of a country it does make it more vulnerable to shocks.

The trends on the market for government bonds were mixed. Yields in Germany and Japan remained stable while increasing slightly in the United Kingdom and dropping in France, Spain and Italy. The spreads in comparison to German government bonds have fallen across the board. This effect was particularly pronounced in France following the presidential elections in the country.

Chasing after yields leads to bubble formation Low profitability could be an indication that many stocks in the euro area and in the United States are overvalued (OECD, 2017). Short-term price corrections are therefore a latent risk. Currently only five percent of the world’s investment grade bonds have yields of more than four percent.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Daily yields of Bitcoin, Dow Jones, euro-dollar exchange rate 60 50 40 30 20 10 0 -10 -20 -30 -40 -50

Bitcoin

Dow Jones

Euro-Dollar-Wechselkurs euro-dollar exchange rate

Source: Macrobond

This figure was 80 percent before the crisis (IMF, 2017b). The chase for the highest yields could lead to considerable bubble formation. An interesting example in this context are the cryptocurrencies such as Bitcoin, Ethereum and Litecoin. Bitcoin tripled in value in the last three months of 2017 before dropping by half in early 2018. The volatility of these assets is many times higher than that of the Dow Jones or the euro-dollar exchange rate. The current fluctuations of the daily Bitcoin yields are much higher than those on the Dow Jones or the euro-dollar exchange rate at the beginning of the crisis in 2008.

Consequences for Germany The global economic upswing should have a positive impact on the German economy and trigger a robust increase not least in German exports. Last year, foreign incoming orders for industry increased more than domestic orders. In 2018, exports are expected to increase by around five percent again given that German exports have always increased in the higher single digit range or above when global trade increased by more than four percent. The high capacity utilisation rate in industry, which increased by 0.7 percentage points to a new ten-year high of 87.9 percent in January 2018, is making capacity expansion investments all the more likely. Overall, the growth prospects for German industry are very good indeed, with robust growth anticipated in private consumption on the back of the good employment situation. We therefore expect real GDP to increase by 2Âź percent in 2018 over the previous year.

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Sources Deutsche Bank Research (2018a). US Economic Perspectives. 17 January.

---(2018b). Data Flash. Japan. December CPI. 26 January.

Draghi, Mario (2018). Press Conference. Introductory Statement. Frankfurt/M. 25 January.

European Commission (2017). European Economic Forecast. Autumn. Brussels. November.

--- (2016). Autumn forecast. Brussels.

European Central Bank (2017a). Economic Bulletin. December.

--- (2017b). Von Experten des Eurosystems erstellte gesamtwirtschaftliche Projektionen für das Euro-Währungsgebiet. Frankfurt. December.

--- (2017c). Financial Stability Review. Frankfurt.

Frankel, Jeffrey (2017). Why Financial Markets Underestimate Risk. Project syndicate. 25 September.

Ito, Takatoshi (2018). The Bank of Japan’s Moment of Truth. Project Syndicate. 26 January.

IMF (2018a). The Current Economic Sweet Spot is Not the ʺNew Normalʺ. Blog. 22 January.

--- (2018a). World Economic Outlook Update. Washington, D.C..

--- (2017a). World Economic Outlook. November. Washington, D.C..

--- (2017b). Global Financial Stability Report. Washington, D.C..

OECD (2017). Economic Outlook. November. Paris.

Shiller, Robert J. (2018). The World’s Priciest Stock Market. Project Syndicate. 23 January.

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Back to four percent growth. Global growth is picking up, but financial risks are also rising 21/02/2018

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29 10178 Berlin T: +49 30 2028-0 www.bdi.eu Authors Dr. Klaus Günter Deutsch T: +49 30 2028 1591 k.deutsch@bdi.eu Dr. Wolfgang Eichert T: +322 792 10 14 w.eichert@bdi.eu Wolfgang Krieger BDI-Vertretung, Peking T: +86 1085 3258421 w.krieger@bdi.eu Julia Howald T: +49 30 2028 1483 j.howald@bdi.eu Thomas Hüne T: +49 30 2028 1592 t.huene@bdi.eu Hanna Müller BDI-Vertretung, Peking T: +86 1851 3608272 h.mueller@bdi.eu Sebastian Schuhmann BDI/BDA Business Representation Dr. Christoph Sprich T: +49 30 2028 1525 c.sprich@bdi.eu Editorial/Graphics Marta Gancarek T: +49 30 2028 1588 m.gancarek@bdi.eu

This Global Growth Outlook is a translation based on „Globaler Wachstumsausblick“ as of 7 February 2018.

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