This year’s economic expansion in the US and in the eurozone is quite impressive and leading indicators point to further strength. Accordingly, we upgraded our 2017 forecasts for economic growth in terms of gross domestic product (GDP). GDP growth in the US will turn out stronger than previously thought. We now expect 2.3% yearly growth, with the latest August reading of the Institute of Supply Management’s leading indicator pointing to very robust expansion in the current quarter. Note that the solid growth backdrop materialised entirely without the support of the Trump administration. Neither tax cuts nor a boost in infrastructure spending were put in place. But private consumption and business investment are strong even without political support.
In the eurozone, we revise 2017 GDP growth up as well to 2.2% year-over-year. Historical figures were revised up and it is still too early to see the negative growth impact from a stronger euro. Domestic growth factors continued to strengthen since political risks declined and the labour market continues to improve even in weak economies such as Italy, Greece and Portugal.
In Japan, we had to revise our growth projection down after the historical Q2 GDP figures saw a sharp downward revision. Nevertheless, leading indicators for Japan are solid, making the revision of 2017 GDP growth from 1.9% to 1.5% entirely technical in nature. The outlook for the Japanese economy remains constructive, which increases the Japanese authorities’ readiness to tolerate a stronger JPY. The JPY profited as a safe-haven asset from rising geopolitical tension with North Korea. In this context, we revised our three-month USD/JPY outlook from 117 to 111 and now feel more comfortable with a neutral rather than a bearish rating for the JPY.