State of global economy better than US Q1 numbers would suggest

The US economy grew at its weakest rate in three years. That seemed to result in a lack of confidence by the public, and a conservative attitude towards spending. The reading was that the weak Q1 numbers deal a blow to plans by Treasury secretary Steven Mnuchin for growth of three percent or better.

But according to Reuters, the Q1 figures don’t tell the whole story.

“A surge in business investment and wage growth suggested activity would regain momentum as the year progresses. Wage growth in the first quarter was the fastest in ten years as the labour market nears full employment and business investment on equipment was the strongest since the third quarter of 2015.” Adds Reuters: “Also underscoring the economy’s underlying strength, consumer and business confidence are near multi-year highs.” This assessment is consistent with the general picture worldwide, as surveyed by ACCA, the Association of Chartered Certified Accountants, and IMA, Institute of Management Accountants, in their Global Economic Conditions Survey (GECS). GECS is the largest regular economic survey of accountants around the world, in terms of number of respondents and the range of economic variables it monitors. There were 1,334 responses from ACCA and IMA members around the world, including more than 150 CFOs. The survey shows that global business confidence rebounded in the first quarter of 2017 and is now at its highest level since the second quarter of 2015. The world had looked a bit different six months ago when Donald Trump was elected.

Put into office on platform of heavy protectionism, with the Leave campaign triumphant in the UK in June, and the election of Marine Le Pen of the National Front a real possibility in France, policy in these three significantly sized markets seemed about to undergo major change.

But the mood is different now. The rate of growth of global trade (of all things) is the fastest it’s been since 2015. On domestic spending, the experts surveyed think that there’s a good chance that it could significantly increase in major European economies, as the unpopular but necessary-at-the-time austerity measures come to an end. They’re preparing to unband their bellies a little, even as we in Trinidad and Tobago tighten.

The survey reports clear signs of a synchronised and sustained recovery since 2011, and expects that to continue over the next two quarters. The other side of the US protectionist coin is tax cuts and spending.

So while there had been (and there still are to some extent) expectations of tightened trade, there are also expectations of increased infrastructural spending and tax cuts. Both have contributed to a buoyant business mood, even though little has actually materialised as policy.

Although there’s more glumness than cheer in the Caribbean, increased consumer confidence in the US generally portends good news for the region. If for example consumer spending picks up, some of those dollars would head to Caribbean destinations, at Fyre levels and below.

The Caribbean Tourism Organisation reported visitor numbers of 29.3 million in 2016, up 4.2 percent year on year. Belize, Turks and Caicos, Bermuda, Antigua and Barbuda, Barbados, Cuba, Guyana, Grenada and Montserrat all recorded double digit increases from the US. Despites the struggles of other sectors of the economy, this is welcome good news for the Caribbean.

Public debt, for example, remains high, especially in the tourism-dependent economies. Since 2010, Antigua and Barbuda, Belize, St Kitts and Nevis, Grenada and Jamaica (twice) have had to default on and restructure their debts. Only two countries in the Caribbean and Central America have successfully achieved a large debt reduction since 1990 without defaulting – Panama, and Trinidad and Tobago. Trinidad and Tobago is dealing with grim economic news of credit downgrades and the introduction of a new property tax, but it can take some comfort in this.

Cautionary tale, though. There are inflationary fears, with nearly half (46 percent) of firms reporting increasing costs as a cause for concern. Despite this, 22 percent are planning to create more jobs and raise capital expenditure, up from 16 percent and 14 percent respectively in the fourth quarter of last year. Despite the notes of caution, there are signs that the global economy is returning to some health after some tough years. The IMF is expecting global growth of 3.4 percent this year, the fastest rate since 2012.

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