Hong Kong: The world economy risks growing too fast for its own good. Group of 20 finance ministers and central bankers meet next week in Argentina amid the broadest and strongest economic upswing since 2011, with President Donald Trump’s tax cuts adding a dose of accelerant. They convene days after the Organisation for Economic Cooperation and Development (OECD) raised its forecasts to show global growth of 3.9% this year and next.

For policy makers and investors, the key questions are how much faster can the world grow—and do they even want it to if overheating means an inflationary boom is followed by another bust.

Global growth has only matched or bettered 3.9%—8 times since 1990, and HSBC Holdings Plc notes every synchronized upswing since then presaged an abrupt shock. The peak of 5.6% in 2007 was followed by the financial crisis a year later.

“When lots of countries are growing strongly, the global economy is at its most vulnerable, thanks to heightened interest rate and financial risks," said Stephen King, senior economic adviser at HSBC.

In a study of 50 economies published last month, King observed that the credit-crunch recession hit the US in 1990 after a period of robust global demand and then bond markets collapsed in 1994 following another growth spurt. The next boom in 1997 came before the Asia crisis and then the world was buoyant from 2004 to 2007 until the worst recession since the Great Depression.

Signs are already appearing that activity is now looking toppish as the Federal Reserve and other central banks tighten monetary policy, China curbs borrowing and Trump implements tariffs. Citigroup Inc. calculates data in major economies are currently undershooting forecasts by the most since September and measures of manufacturing confidence appear to be cresting, albeit at lofty levels.

“Even though the sun still shines in the global economy, there are more clouds on the horizon," International Monetary Fund Managing Director Christine Lagarde said in a blog post addressed to G-20 policy makers. “Think of the growing concerns over trade tensions, the recent spike in volatility in financial markets, and more uncertain geopolitics."

The fear of a trade war will be high on the agenda in Buenos Aires, with Bloomberg Economics estimating such an event could wipe $470 billion off the world economy by 2020.

Investors seem placated for now. Global stocks were roiled in January amid concern a pickup in U.S. inflation would force central banks to react, yet subsequent data showed price pressures remain muted even as companies keep hiring.

“Overheating -- in the form of a sharp pick-up in inflation—is still a good way into the future," Robin Brooks, chief economist at the Institute of International Finance, said of the U.S.

In a report to clients on Thursday, Nomura Holdings Inc. economist Andrew Cates wrote that there is “plenty of scope for this cycle to mature" because tightening labor markets and stronger demand should prompt companies to invest and productivity to advance, allowing the global expansion to continue.

There could still be trouble ahead.

In the US, tax cuts and government spending are stoking demand but could end up provoking the Fed into raising interest rates more aggressively than policy makers now plan, risking another fallout in financial markets. Unemployment is already at 4.1% and could fall further.

Fitch Ratings said on Thursday that “booming" global conditions will trigger central banks to raise interest rates.

“The Fed will need to move rates materially higher over the next few years to head off overheating risk two to three years out," said Krishna Guha, vice chairman at Evercore ISI in Washington.

Still, incoming White House economic adviser Larry Kudlow urged the Fed not to “overdo it" in raising interest rates: “Growth is not inflationary. Just let it rip, for heaven’s sake," he told CNBC in an interview.

The risks are not just in the US

Europe’s political fragility was laid bare this month when support for populist parties surged in Italy’s elections. Negotiations around the UK’s departure from the EU remain protracted and separatist tension in Spain continues to simmer. JPMorgan Chase and Co. economists last week cut their projections for growth in the euro area this quarter to 2.5% from 3.5%.

Meantime, China’s annual gathering of the National People’s Congress, a rubber stamp parliament that met this month in Beijing, signaled less fiscal support for the world’s second-biggest economy. Fresh data on Wednesday showed hints of a weakening in real estate and infrastructure, pointing to a broader moderation ahead. A government push to curb borrowing is expected to moderate growth to 6.5% from 6.9% last year.

“Growth risks look balanced in the short term, but increasingly skewed to the downside as policy tightening bites and the risks of an asset price correction mount," said Paul Mortimer-Lee, chief market economist at BNP Paribas SA. The question is “not whether or not this year will be good—because it is likely to be very good—but when the global economy will slow down and under what circumstances." Bloomberg

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