2018 CCF Victorian Infrastructure Outlook Report 1 | Page 11

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The Eurozone is expanding at the fastest pace
in a decade. Export conditions are improving, investment
is recovering, and weaker inflation and strong consumer
confidence and employment are increasing household
spending. Overall, growth in Europe will average 2.3 per
cent in 2017 and 2.0 per cent in 2018. Broadly, economic
growth in Europe is expected to sink to an average of 1.7
per cent over the five years to 2022, as growth eases over
the medium term.
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Despite the stronger global environment, growth
in the United States remains constrained at around 2.3
per cent. US economic growth is forecast to be 2.3 per
cent in calendar 2017, but will accelerate to 2.7 per cent
in calendar 2018. The combination of solid increases
in employment and moderate wage growth will drive
household income, consumer spending and residential
investment. Business investment is forecast to accelerate,
driven by improving domestic demand and export gains
from a stronger global climate and rebounding energy
sector activity.
The uncertainty surrounding the likelihood, timing and
magnitude of President Trump’s policy proposals explain
why he is seen as the greatest upside and downside
risk to US and global growth in the short term. Political
uncertainty represents a downside risk to business
expansion. Trump’s proposed fiscal stimulus measures
– especially those relating to large civil infrastructure
projects – have the potential to boost growth from 2019,
given the long lead times in getting major infrastructure
projects ‘shovel-ready’ from the planning stages to
commencement. Passing of legislation, notably complex
tax reforms, will also take time.
Stronger US economic growth is expected to be tempered
by the Federal Reserve raising interest rates towards
more ‘normal’ monetary policy settings, and to ward
off inflationary pressures from easing fiscal policy. This
tightening cycle also presents a risk for the international
economy: emerging economies potentially face the risk
of rising capital outflows as investors rebalance portfolios
and shift balances to higher returns on offer in advanced
economies. Emerging economies may need to raise
rates (higher than what would be typically warranted by
domestic circumstances) to prevent the destabilisation
of capital outflows, falling asset prices and weaker
confidence.
Figure 1.1: Economic Growth by Global Region and Australia, Calendar Years
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