After accelerating a little in Q3, business surveys suggest that the world economy has continued growing at a fairly rapid pace in the final months of 2016. Labour market data for the US have been encouraging, the eurozone and Japan are doing better than many expected and the UK has continued to weather the referendum result well. With oil prices having rebounded, headline inflation is now certain to rise in the coming months. Combined with the prospect of a large US fiscal stimulus, which will push up underlying inflation in the US, this will prompt the Fed to raise rates significantly next year. By contrast, core inflation will remain low in the euro-zone and Japan, and both the ECB and BoJ look set to keep monetary policy exceptionally loose for the foreseeable future.
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