In its latest “Global Economic Prospects” report, the World Bank predicts 2.7 percent growth for 2017, up from 2.3 percent growth in 2016. In particular, it predicts improvements in the emerging markets, and if the United States succeeds in enacting pro-growth fiscal policies, it “could lead to stronger-than-expected activity and thus represent a substantial upside risk to the outlook.” With that said, the pace of the global economic expansion remains subpar, even with progress. In this release, current projections for growth in 2017 in the United States is 2.2 percent, up from 1.6 percent in 2016. (My forecast for 2017 is 2.6 percent, with 1.5 percent growth in manufacturing production.) Among other highlights, the World Bank forecasts growth in the emerging markets of 4.2 percent in 2017, with the Eurozone and China up 1.5 percent and 6.5 percent, respectively.
This analysis coincides with better data about manufacturing worldwide. The J.P. Morgan Global Manufacturing PMI expanded at its fastest pace since February 2014, representing notable progress since essentially stagnating as recently as May. Twelve of the top-15 markets for U.S.-manufactured goods exports experienced growth in their manufacturing sectors in December, up from 11 in November and just seven in August. That meant that the number of countries contracting in their manufacturing sectors whittled down from three to two in December, with Hong Kong expanding for the first time since February 2015. Brazil and South Korea were the lone two nations with contracting activity levels in the latest data, with both continuing to struggle, much as they have for the past two years. (There is no manufacturing PMI for comparison purposes for Belgium, which is our 10th-largest trading partner.)
The strongest manufacturing growth among our top trading partners was in the Netherlands, Taiwan, the United Kingdom, Germany and Australia. Of those markets, Taiwan experienced its fastest growth in manufacturing activity since April 2011, and the United Kingdom continued to brush off Brexit uncertainties, with its PMI rising to its highest point since June 2014. Among other things, manufacturers in the United Kingdom have benefited from a cheaper pound, with decent export growth. It was not alone, as Eurozone manufacturing activity accelerated in December to its highest level since April 2011, boosted by better data on new orders and output.
Chinese manufacturers also ended 2016 on a high note. The Caixin China General Manufacturing PMI increased at its fastest pace since January 2011. New orders and output increased, with production growth at its highest level in nearly six years. With that said, exports were stagnant for the month after contracting for much of the past year, and employment continued to lag behind. Employment has now been negative for more than three years. We will get several key data points on January 19, including fourth quarter real GDP, which is expected to come in around 6.7 percent year-over-year. If so, it would match the rate in both the second and third quarters.
Meanwhile, there was mixed news in North America. Canadian manufacturing continued to rebound from autumn softness, with activity at a five-month high. That represents progress after activity nearly stalled in September. More importantly, activity has now expanded for nine consecutive months, and the pace of new orders was the fastest in two years. The national headline number was boosted by improvements in Alberta and British Columbia as well as Ontario, with the former benefiting from higher energy commodity prices, expanding at two-year highs. At the same time, Mexican manufacturing activity slowed to a crawl in December, expanding at its slowest rate since October 2013. More positively, exports picked up slightly in December, likely benefiting from a significantly weaker Mexican peso. Along those lines, the peso depreciated (and the U.S. dollar appreciated) nearly 20 percent in 2016, with 11.8 percent of that shift occurring after President-elect Donald Trump’s election on November 8.
As the United States prepares for a transition to the new Trump administration, trade continues to be one of the key issues under discussion. From new trade appointees to a relook at the North American Free Trade Agreement (NAFTA) and improved trade enforcement, activity is accelerating to prepare for the new administration. Key NAM priorities relating to the Export-Import (Ex-Im) Bank, the Miscellaneous Tariff Bill (MTB), export controls and trade relations and potential negotiations with key countries will also figure prominently in the weeks and months ahead.
Chad Moutray, Ph.D., CBE
National Association of Manufacturers