Prospects still dim for big global economic pickup

London/Brasilia/Bengaluru - Fed liftoff shows confidence in US, but weak China a worry

The world economy may be set for another year like 2015, with modest growth in developed economies offsetting persistent weakness elsewhere but generating very little inflation and keeping interest rates low.
The US Federal Reserve's long-awaited rise in rates from zero showed confidence in the world's largest economy, but rival China is still struggling for a foothold with rate cuts. Although some countries, such as Brazil, have mainly homegrown inflation troubles, the Fed's first post-crisis rate hike is an unlikely cure for what ails the rest of the world.
With exchange rates dominating the policy debate in many countries, what happens to the dollar will matter a lot.
"The key question is whether the US economy is finally robust enough not only to sustain its own recovery but also to lift world trade and global growth enough to allow the external deflationary pressures weighing on US inflation to wane," outlined HSBC economists Janet Henry and James Pomeroy.
Along with an abrupt downturn in the volume of global trade and a continuing fall in commodity prices, the dollar's rise this year has brought US industrial growth to a near-standstill, keeping a lid on inflation pressures from abroad.
The other extreme, according to HSBC, is that the United States, "via a strong US dollar, will simply become the latest victim of the deflationary pass-the-parcel which has plagued the global economy for a decade, and find itself following all of the other developed market central banks which raised rates but soon found they had to reverse course."
"The outcome, we believe, is likely to be somewhere in between." A Reuters poll of 120 economists on Friday forecast the Fed would hike rates again in March, but probably won't move as quickly next year as policymakers have suggested.
Other recent Reuters surveys of hundreds of analysts worldwide do not offer hope for a pickup in inflation, even in the United States where the central bank says it is reasonably confident this will happen. Even the most optimistic core inflation forecasts are not far above two per cent.
The polls point to global growth averaging only 3.4 per cent next year with scant prospect of touching four per cent given the slowdown in China and the gloom surrounding emerging markets. - Reuters