We should look forward with measured optimism

At the beginning of every year we look ahead at what is possible and rarely factor in unexpected events always out there, writes Jim Power.

Every January for 10 years has been characterised by deep uncertainty and foreboding. This year, all available evidence would suggest we should be able to look forward with measured optimism.

The year just past was a good one for the global economy, and unemployment and high levels of government debt eased somewhat on the back of stronger economic growth. It is amazing how a bit of growth can make the most insurmountable problems look less threatening.

We exited 2017 with a healthy global economic momentum and that momentum should carry us well into 2018. The US economy should continue to expand healthily, the outlook for emerging economies looks positive, and growth in the eurozone outpaced that in the UK. This is likely to remain.

Brexit will once again dominate. Since June 2016, we have barely moved beyond shadow boxing, but the fight did perk up in the final weeks of 2017.

We are about to embark on arguably the most important stage of the process around trade between the UK and the EU, with the gloves threatening to come off.

It is impossible to be too prescriptive about how the process will evolve over the coming year. However, I did get a strong sense late last year that the UK side is being forced to compromise, which is no surprise given that most of the power resides on the EU side since Article 50 was invoked.

I get a sense that many sensible UK people are starting to realise the mistake made. A re-think is possible, but more likely is that many more UK compromises will be made to enable a soft form of Brexit where the UK will have significant access to the single market. Of course the evolution of UK politics will be key to such a scenario unfolding.

It will be fascinating to see if President Donald Trump will be able to build on his tax reform package. Mid-term elections in November will be particularly interesting. Italian politics could also be a factor, with a general election due in March.

On the interest rate front, the environment for years has reflected extreme economic weakness. As weakness dissipates, one would expect interest rates to return towards some semblance of normality. The question is if and when it might happen in the eurozone?

The ECB remained very relaxed about interest rates during 2017, despite relatively strong growth recovery. It will more than likely be 2019 before official rates start to move back towards normality. However, if the current strong growth momentum is maintained, the ECB could start to become less relaxed as 2018 progresses.