Our April Outlook reiterated our positive January forecast that the world’s stock markets would rise in 2017 in response to a significant acceleration in global GDP growth for the first time since 2010. Yesterday, the IMF issued its updated World Economic Outlook, which supported our forecast:
“Global economic activity is picking up with a long-awaited cyclical recovery in investment, manufacturing, and trade… stronger activity, expectations of more robust global demand, reduced deflationary pressures, and optimistic financial markets are all upside developments.”
Especially important in the IMF’s optimistic outlook is that the acceleration will be compelling, broad-based, and sustainable: world growth is expected to rise from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018. The growth spurt will also be synchronized with both advanced and emerging economies participating. US growth, for example, is projected by the IMF to rise from 1.6% in 2016 to 2.3% in 2017 and 2.5% in 2018.
We estimate that this higher growth in 2017 will result in double-digit profit gains for both US and international companies, which in turn will provide the fuel for further stock market gains.
As with all optimistic forecasts, there are risks to the downside. Here the IMF highlights, “a shift toward inward-looking policy platforms and protectionism,” increased geopolitical tensions, and a surprise slowdown in China.