A third major factor making for a stronger world economy is not directly related to the financial crisis. At the beginning of last year the markets and many commentators managed to get themselves extremely worked up over the damage supposedly done to the world economy by low oil prices. By contrast, it seemed to me that low oil prices had to be a good thing. But the losses from low oil prices were highly concentrated and visible in the short term; by contrast, the gains were more widely distributed and might only become evident to the beneficiaries after a period of time. Accordingly, it was likely that there would be a short-term hit to the global economy, offset by a longer-term gain. We are now into that longer term.

Meanwhile, the recovery from ultra-low oil prices has brought a further benefit, namely the easing of the pressure on hard-pressed companies and countries. Russia, for instance, should emerge from recession this year. Even so, oil consuming companies and individuals are still facing much lower prices than they were two years ago. The result is that the world should now be experiencing a substantial net dividend from lower oil prices.

The upshot of all of this is that world growth this year is set to be higher than last year. Not only that, but it may well be a good deal stronger than almost anyone expects.  Of course, in the world of forecasting you have to be prepared for surprises. Over the last few years we have all been exceedingly well prepared for downside surprises. What I am about to say is decidedly risky but I will say it nevertheless: I have a hunch that we now need to be prepared for surprises on the upside.

David Fuller's view

I have been making many of these points for a while, so I agree with Roger Bootle. 

Businessman Trump will certainly want to improve the US economy and he has selected a highly experienced and business savvy cabinet to help him achieve this goal.  There is a risk that he might trigger a trade war with China, but I think he is too smart for that lose-lose mistake. 

Trump is fed-up with what he saw as Obama’s passivity.  He wants China to know that the US will now compete, and also cooperate, on a level playing field.  The same goes for Russia and any other country, although I think he could be particularly helpful towards the UK, as thanks for Brexit which Trump believes helped him to win the Presidential Election.  He holds little affection for the EU, having heard more about it from Nigel Farage, and having seen some of the whopping legal settlements and fines imposed on US corporations.  He probably views the EU as a rival rather than a friend, and he knows it has seldom paid its 2% of GDP per country NATO fees. 

Among uncertainties with the capacity to shorten or lengthen stronger GDP growth during the lengthy medium term are interest rates and the US Dollar.  We know both will almost certainly be rising.  However, we do not know how quickly or for how long that strength will persist.

Commodities are in the second year of their cyclical rise and that will increase inflation, although accelerating technological innovation will continue to have a disinflationary influence.  We have recently seen that Trump will attempt to jawbone the Dollar down, but how can he succeed in more than temporarily interrupting the uptrend if a stronger US economy and higher inflation cause the Fed to raise rates more quickly than people currently expect? 

Fortunately, we can monitor these developments on price charts.  Two of the most important ones - 10-Yr Treasury Bond Yields and the Dollar Index – can be seen in my Markets Now presentation, posted below. 

Here is a PDF of Roger Bootle’s column.