December 2017

• 2017 ends with the world economy performing well and in better shape than expected this time last year. Yet, three dark clouds hang over the global economic outlook: (1) stagnant real wages, (2) increasing inequality and (3) weak productivity. Even so, next year, global growth could exceed 3.5%, but this aggregate number doesn’t tell us much about economic and social welfare: in a majority of high-income countries, people have a job, but most feel neither rich, confident nor secure.

• In 2018, inequality will be by far the greatest socioeconomic issue, and could even constitute a threat to democracies. Since 1980, inequality has increased rapidly in the US and Asia, moderately in Europe while remaining stable but at an extremely high level in the Middle East, Africa and Brazil. Since 1980, globally, the top 0.1% has captured as much growth as the bottom half of the world adult population. To prevent the rise of ‘plutocratic populism’, taxes and public spending will be the policy tools increasingly employed to reduce inequality.

• In the short term, Trump’s $1.5tr tax cut will energize the US economy by boosting GDP growth, with two immediate consequences in 2018: (1) the US economy will outperform the rest of the world; (2) the USD will appreciate. Beyond that time horizon, the tax law will start generating higher than expected fiscal deficits – a rise in inflation and a contraction in social spending. . . .

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