Global economic growth is returning to pre-crisis levels. According to International Monetary Fund (IMF) estimates, global GDP increased by 3.7% in 2017, compared to 3.2% in 2016. The economic improvement is evident in all regions, with Europe and Asia posting the most notable positive surprises. “GDP in the eurozone was up 2.5% last year – its highest rate of growth since 2007,” notes Guy Wagner. In Japan, GDP has climbed for eight consecutive quarters. In China, GDP increased by 6.8% in 2017, in line with the government’s target

Despite economic growth, inflationary pressures remain low

In December, inflation fell slightly in the United States and the eurozone. As expected, the US Federal Reserve left its key interest rate unchanged. The monetary authorities have high hopes of inflation climbing this year to stabilise around the 2% target in the medium term. Anticipation of higher inflation has boosted the probability of an interest rate hike at the Fed’s next monetary policy committee meeting in March. In Europe, Mario Draghi, President of the European Central Bank (ECB) reiterated that interest rates would stay at current levels for an extended period of time.

Bond markets still hold little attraction

In the eurozone, the yields on offer continue to be very low, while the higher yields offered on US Treasuries are in danger of being eroded by the weakness of the dollar.

A rise in long-dated yields is the main risk for the ongoing rally on the equity markets

In the short term, a rise in long-dated yields is the main risk for the ongoing rally on the equity markets, where valuation levels have become very high. “However,” concludes Guy Wagner, “in view of the lack of alternatives, a scenario in which already-expensive equities become even more expensive cannot be ruled out.”

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