CEOs Rank Top Economies for Growth Opportunities

#1 United States

The U.S. economy remains on track to expand at a faster clip in Q2 after a bleak Q1 performance. The ISM manufacturing index firmed up in May following two consecutive months of decline thanks to a faster pace of job creation and resilient output growth. In addition, the unemployment rate inched down to a 16-year low in May, further shoring up households’ disposable income at a time of meager wage growth and tightening financial conditions. Indeed, although retail sales surprised on the downside in May despite buoyant consumer sentiment and a robust labor market, upward revisions to the previous months more than made up for May’s miss.

The outlook for this year remains bright on account of a solid job market, a relatively healthy housing market and a notable turnaround in business investment growth. Nonetheless, persistent political wrangling in Washington continues to foment doubts about the administration’s ability to roll out growth-inducing policies later this year. Analysts expect the economy to grow 2.2% this year, unchanged from last month’s projection, and see it picking up slightly to 2.4% in 2018.

#2 China

Economic momentum was largely stable in May, with growth in industrial production and retail sales steadying. Property investment growth slowed in the same month after having expanded consistently since Q3 2016 at which point the government’s initiatives to curb the booming real estate market started to bear some fruit. Overall, the Chinese economy is feeling the pinch from a tighter monetary policy, reflecting the authorities’ efforts to deleverage the financial sector. Nevertheless, it seems that China’s reforms are not sufficient enough to rein in the country’s massive debt. Moody’s downgraded China’s credit rating on 24 May citing risks stemming from rising debt in a context of slowing potential growth. On the upside, data from the external sector showed healthy global demand and still resilient dynamics at home, with both exports and imports accelerating in May.

Tighter financial conditions and slowing growth in the property sector will lead the economy to slow in the second half of the year. Nevertheless, the government will continue to shore up growth if necessary. Analysts forecast that the economy will grow 6.6% in 2017, up 0.1 percentage points from last month’s estimate. In 2018, the panel expects GDP growth to tick down to 6.2%.

#3 Germany

Germany’s healthy economic momentum shows no signs of abating after the strong showing in Q1. Leading indicators reached multi-year highs over the course of Q2 and businesses in particular are especially confident. While the PMI index moderated slightly in June, the IFO Institute’s business confidence indicator reached a new all-time high. Both illustrate the strong support improved global economic conditions have offered German businesses. While the external sector continues to fulfill its role as Germany’s traditional engine of growth, domestic demand is also expected to have strengthened in Q2. Sky-high business confidence points to strong investment growth, even if it is expected to moderate somewhat from Q1’s exceptionally-high reading. Private consumption in particular continues to benefit from an ever-tightening labor market and record-high consumer confidence. On the political front, the conservative CDU, the Greens and the liberal FDP have agreed to form what is called a “Jamaica coalition” in Schleswig-Holstein, which could have a strong signaling effect ahead of September’s national elections.

GDP growth should remain robust this year, thanks to a strong external sector and resilient fixed investment. However, higher inflation will weigh on household consumption. Our panel expects GDP to grow 1.8% in 2017, which is up 0.1 percentage points from last month’s forecast. For 2018, the panel expects GDP growth of 1.7%.

#4 UK

Prime Minister Theresa May’s “Brexit election” backfired as her Conservative Party lost the parliamentary majority in the 8 June vote. Although the Tories managed to build a coalition government with the Democratic Unionist Party, the result represents a serious setback for May’s hard Brexit stance and it will likely lead to a softer approach. In this regard, at the first day of the Brexit talks on 19 June, the UK apparently capitulated and accepted the EU’s agenda of first discussing citizens’ rights and the “exit bill” before negotiating any trade accord. Meanwhile, the economy is continuing to face the headwinds of the entangled political situation, following Q1’s disappointing performance. In May, house prices slowed further, while consumer sentiment remained firmly entrenched into negative territory. Although the unemployment rate stood at a multi-year low in April, real wages declined in the February-April period, casting a long shadow on the UK’s economic outlook.

The weak government resulting from the June election has added to an already uncertain economic outlook as the country is sailing the uncharted Brexit waters. As a result, uncertainty is deterring investment and consumers are feeling the pinch of rising inflation. The Bank of England’s (BoE) ultra-loose monetary policy stance and healthy global demand, however, will soften the slowdown. Our panelists are forecasting 1.6% growth for this year, which is down 0.1 percentage points from last month’s forecast. For 2018, growth is projected to fall to 1.3%.

#5 Japan

It’s smooth sailing for the Japanese economy again in Q2, although revised data for Q1 revealed a weaker performance than initially reported. Exports expanded at the fastest pace in more than two years in May, signaling robust global demand. Healthy shipments of Japanese goods are having positive reverberations across the economy, with growth in industrial production hitting a nearly-six-year high in April. Despite May’s strong export reading, the trade balance swung to a deficit in May as imports soared in the same month, underlining the strength of Japan’s growth momentum. Moreover, wages appear to have entered onto a sustained growth path, which is expected to foster private consumption. In the political arena, Prime Minister Shinzo Abe’s approval ratings are plunging amid claims the he used his influence to benefit a friend’s business.

Strong global demand and a weak currency are propelling economic activity. Japan’s external-sector-led recovery, however, could be threatened by a sharp appreciation of the yen and an economic slowdown materializing in China. Analysts see the economy growing 1.3% this year, which is up 0.1 percentage points from last month’s projection. For 2018, they see growth at 1.0%.

#6 Brazil

Testimony from a corruption scandal implicated President Michel Temer directly in May, unleashing a political bombshell in Brazil and casting doubt on whether Temer will fulfill his term. Although Temer has held onto power so far and was cleared by the top court of accusations that he violated campaign finance laws on 9 June, he is deeply unpopular and the government’s implication in a corruption scandal is threatening its stability and effectiveness. The political chaos bodes poorly for the economy’s battered recovery as reform momentum will likely slow as politics takes center stage. Although GDP improved notably in Q1 thanks to a record harvest of soybeans and improved sentiment, overall conditions are still weak and incoming data is mixed. Industrial production improved in April but growth remained weak, however, the current account recorded a solid surplus while the manufacturing PMI rose in May.

The sharp increase in political uncertainty led our analysts to downgrade Brazil’s outlook this month. The FocusEconomics panel sees GDP expanding a meagre 0.5% in 2017, which is down 0.1 percentage points from last month’s forecast. The recovery is seen gaining speed in 2018 and GDP should increase 2.2%.

#7 India

The lingering impact of demonetization and a statistical base effect caused growth to plunge in the final quarter of FY 2016. A deceleration was seen across almost all components of GDP, with investment being a particular weak spot and contracting for the first time in two years as the stressed banking sector hurt activity. Early data for FY 2017 points to lackluster momentum: industrial production growth lost steam in April and the PMIs pointed in different directions in May. However, household consumption is on the mend as the impact of demonetization fades and a healthy monsoon is seen supporting rural spending. On the political front, despite speculation that the overhaul could be delayed, the sweeping GST reform appears set to be rolled out on 1 July, simplifying India’s array of indirect taxes to four rates—5%, 12%, 18% and 28%. While the reform is seen largely as positive in the long-run, it is uncertain if many firms in the country are prepared for the transition and the implementation could disrupt activity temporarily.

Growth is seen picking up in the coming quarters as an improving external sector and reviving consumption support activity. The FocusEconomics panel sees GDP expanding 7.3% in FY 2017, which is unchanged from last month’s forecast. For FY 2018, growth is projected to accelerate to 7.6%.

#8 Mexico

The Mexican economy continues to withstand the uncertainty linked to the U.S. trade agenda and the reverberating effects of soaring inflation remarkably well. A comprehensive set of data showed that GDP grew in Q1 at an even faster pace than at first estimated, while consumer confidence continued to trend higher through May as heightened inflation and tightening financial conditions were offset by still-strong remittance growth and a supportive labor market. However, Q2 has seen incipient signs of a slowdown. The April trade report showed that, while trade dynamics were still positive, key manufacturing exports entered the quarter on a much weaker footing, dragging on the overall exports result. In line with spillover effects from weak manufacturing exports, industrial production growth plunged in April. Nonetheless, things are looking up in the political arena for the ruling PRI party, which in early June obtained a crucial victory in the election for the state of Mexico, the first test ahead of next year’s presidential elections.

Although the risk of a disorderly renegotiation of NAFTA still weighs on the outlook, with talks slated to begin on 13 August at the earliest, our panel of economists continues to reassess their forecasts in light of the resilient dynamics observed so far in the Mexican economy. They now expect GDP to expand 1.9% this year, which is up 0.1 percentage points from last month’s forecast, and 2.2% in 2018 as growth becomes more broad-based.

#9 France

The French electoral season culminated on 18 June with a decisive victory in the legislative elections for Emmanuel Macron who turned the political system on its head after sweeping to power in May. The president’s two-party coalition secured a comfortable majority with 60.6% of the seats in the National Assembly. The former banker and socialist minister now possesses one of the strongest mandates in recent history which will allow him to implement his ambitious reform agenda to rekindle growth in the Eurozone’s second-largest economy. Despite Macron’s strong mandate, the road ahead is uncertain and filled with obstacles. Ambitious reform efforts by the previous administration, such as last year’s labor reform bill, were thwarted by massive street mobilizations. The president faces a tough balancing act between pushing deep-seated reform to foster stronger mid-term growth and avoiding widespread discontent that could dent short-term growth, such as what occurred in 2016.

The French economy is expected to accelerate this year and next on the back of a recovery in exports and solid domestic demand. The outcome of the spring elections has dissipated fears about the country’s future political trajectory and panelists participating in the FocusEconomics Consensus Forecast expect GDP growth to accelerate mildly to 1.4% this year, which is unchanged from last month’s forecast. For 2018, the panel foresees growth of 1.5%.

#10 Australia

The Australian economy nearly ground to a halt in Q1, yet the meager expansion over the previous quarter proved just enough for Australia to take the record for the longest period of uninterrupted growth away from the Netherlands. The GDP outturn in Q1 highlighted the weakness in the domestic economy: private consumption growth slowed as a result of soft labor market dynamics and slow wage growth, which managed to eke out an expansion only because households are cutting down on their savings. Weak household income growth also had a negative knock-on effect on investment, which suffered from a contraction in dwellings investment, suggesting that the Australian housing cycle has played itself out. The downbeat economic momentum seems to have carried over into Q2, during which sentiment indicators have consistently trended downwards. However, that assessment is somewhat mitigated by contradictory hard data: retail sales accelerated strongly at the start of the quarter and the unemployment rate fell to a multi-year low in May.

Economic activity is expected to moderate this year because of continued weakness in the labor and real estate markets. Panelists expect GDP to expand 2.4% in 2017, which is down 0.1 percentage points from last month’s forecast. For 2018, our panel expects GDP growth of 2.8%.

There you have it. Our most current economic outlooks for the top economies for business growth opportunities according to PwC’s Gobal CEO Survey. You can subscribe to FocusEconomics Consensus Forecast reports to get economic outlooks on over 120 countries. We’ve also got dedicated reports to 33 key commodities if that tickles your fancy. If you’d like to see a free sample report, click on the link below.

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