World economic growth likely to register 3.6 pct this year and next; monetary policies to stay accommodative: National Bank of Canada

The world economy is expected to expand by 3.6 percent by end of this year and next, courtesy of upgrades to China and Europe. Stronger global merchandise trade volumes have been a boon to both advanced and emerging economies this year. While some central banks will raise interest rates next year, the overall stance of monetary policy is likely to remain accommodative in light of persistently low inflation, National Bank of Canada reported in its latest research.

Stronger growth in the OECD has not surprisingly allowed the jobless rate to drop towards pre-recession levels. However, inflation has not picked up as central banks would have liked, in part because of the lack of wage growth. In September, the annual core inflation rate was just 1.1 percent in the Eurozone and a meagre 0.2 percent in Japan.

While the Eurozone’s expansion continued in Q3, the pace of growth moderated somewhat in part due to consumers. Retail volumes are on track to see a quarterly contraction for the first time since 2015. That’s more a case of consumers taking a breather than a sign of deteriorating fundamentals. The labor market continues to generate jobs, with the unemployment rate now at an 8-year low of 9.1 percent. In Germany, the jobless rate is at a multi-year low 3.6 percent.

The euro zone's largest economy is benefiting from improving global trade with strengthening exports boosting its manufacturing base. German industrial production was up 4.7 percent year-on-year in August, higher than the zone’s average of 3.8 percent. And based on Markit’s manufacturing PMI (which soared to an 80-month high in October), odds are that factory momentum extended into Q4 not just in Germany but in the Eurozone as a whole.

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