Economists are typically a pretty gloomy bunch. Paraphrasing Winston Churchill, you could say that they have much to be gloomy about. The coming year is no exception. There are serious geo-political risks that could upset the world economy. There usually are. But I propose to put these aside on the impressively scientific grounds that (a) they may not materialise; (b) even if they do, their economic impact may be minor; and (c) they are extraordinarily difficult to assess.
So I am going to concentrate on the pure economics. I reckon that the world economy is returning to full health. This is perhaps most clearly evident in the United States. Even so, critics are saying that the US upswing is already very old and accordingly that a downturn may be imminent. Yet US expansions do not normally die of old age. Rather, they are killed off by the Federal Reserve.
I reckon that the Trump tax cuts will amount to a fiscal relaxation of about 0.8pc of GDP, when the economy is already growing at a decent pace. True, the boost to aggregate demand will not be as high as 0.8pc as a considerable proportion of the increase in disposable incomes will be saved rather than spent, and some of the increased spending will leak into imports. Nevertheless, the result will be US growth this year of about 2.5pc, some 0.3pc faster than last year.
In the eurozone, we are also likely to see continued growth as even the weaker economies are dragged along by stronger activity in the core, helping to bring unemployment down and to lift consumer real incomes.
To read Roger Bootle’s piece for the Daily Telegraph in full, click here.