The global economic recovery is set to continue in the new year, but some structural factors will continue to shape policy debates
The synchronized global economic recovery is likely to continue in 2018. On the policy front, the US Federal Reserve is widely expected to move forward on the normalization path, by both raising rates and shrinking its balance sheet. The European Central Bank will also start moving away from easy money, though the policy will remain accommodative for the foreseeable future. It will be interesting to see how financial markets react to these developments during the year. Meanwhile, the Japanese central bank is expected to continue with its easing programme.
Policy stances could change if inflation surprises on the upside. It has been difficult to forecast inflation, especially in the US, which indicates that the level of complexity in policymaking might rise in the future. At a broader level, even as the cyclical expansion continues, some structural factors, such as the rising global debt stock, ageing, automation and stagnation in productivity will continue to shape global policy debates. In financial markets, after a sharp move up in stock prices in 2017, higher valuations would get tested in 2018.