Global growth surge could be over already as engines stutter, UBS warns

The US shale boom has helped drive growth worldwide, but may no longer be powerful enough to accelerate the pace of the global expansion any further. Photo / 123RF

The surge in global growth this year could be over already as its twin engines slow down.

China's property-fuelled expansion and the boom in US shale could be coming to an end, economists at UBS believe, with no clear new growth spurts appearing in other parts of the world.

"The main engines behind the global growth acceleration in 2017 are starting to sputter," said UBS's Arend Kapteyn, according to the Daily Telegraph.

"Significant rotation needs to take place from energy to non-energy investment to sustain the current 3.8 per cent growth pace. The surveys suggest that may happen, but we haven't seen it yet."

There is still room for growth to pick up.

Kapteyn cites "a larger-than-expected tax cut in the US" as one potential force driving the world economy upwards, while "abating policy uncertainty on both sides of the Atlantic [could lead] to a much stronger investment response".

Meanwhile threats include the potential failure of business investment to spread beyond the energy sector, as well as a shortage of workers forcing inflation and interest rates upward around the globe, and any major failures in US policies such as the collapse of Nafta negotiations or tax reforms.

However, the bank does not expect growth to stop - merely to cease accelerating.

It forecasts global growth will stay at 3.8 per cent per year in the years ahead, with the US picking up a touch to 2.3 per cent in 2019, the UK slowing to 1.1 per cent and the eurozone slowing from 2.3 per cent this year to 1.7 per cent in two years' time.

That slowing in the UK, caused by businesses' cautious approach to investment as well as the combination of rising inflation and weak pay growth, means UBS thinks further interest rate rises are off the cards.

"If UK growth slows as we anticipate, and the inflation rate begins to cool, we think the Bank of England's monetary policy committee will be unable to add to its recent rate hike for the foreseeable future," Kapteyn said.

"We no longer expect a second 0.25 percentage point rate hike in May 2018."

There is uncertainty around this, however - analysts at Capital Economics are more upbeat and believe there is room for three UK rate hikes next year.

They estimate the world economy grew at an annualised pace of 3.6pc in the third quarter of the year, slowing a touch from 4 per cent in the previous three-month period.

Recent growth improvements in the rich world in particular is driving more consumer spending and so boosting growth further.

"Confidence in advanced economies has surged since early 2016, at the same time as the so-called 'misery index' calculated as the sum of the unemployment rate and core CPI inflation - has fallen to its lowest level in over 16 years," said chief global economist Andrew Kenningham.