Will Policy Tightening Save The Global Growth Recovery?

Forex News

Global economy is recovering and as the impulse is getting stronger, Central Banks find themselves under the pressure to tighten their policies. As we may recall, Fed, BoE and BoC already increased their interest rates and are on track for another ones while the ECB decided to end its stimulus program. All these accommodations were very gradual as a faster pace of tightening might result in massive economic shock.

US economic growth has been buoyed by a tax reform. As of other countries, they saw their growth exceeding the 10-year moving averages. But, analysts warn: "Synchronized global growth has tended to occur during only three stages in each economic cycle: in the initial recovery from recession; the years immediately preceding the next recession; or ahead of some sort of financial trauma".

Economists assume that global economy should expand 3.7% in 2018 and 3.6% in the next year. Managing Director of the International Monetary Fund Christine Lagarde reassured: "Global growth has been accelerating since 2016 and all signs point to a continuous strengthening of that growth, in 2018 and next year".

In the beginning of this year stocks staged a period of broad weakness. Alliance Bernstein economists explained: "It's hard not to see recent market turmoil as a taste of what's to come as we enter a world in which central-bank support for asset prices can no longer be taken for granted”. Some analysts even believe that the downtrend at the stock market was a result of Fed’s and ECB’s policy decisions. Fed plans to raise rates 3 times in 2018. But, investors are convinced there will be 4 or even 5 of them, which puts market under the pressure.