The world economy is entering 2017 with stronger growth and rising inflation, but prospects for the rest of the year are more mixed. Activity has picked up in unison across the major economies in recent months, and the recent rise in energy prices will push headline inflation close to or above central banks’ 2% targets in the first half of the year. In the US, a tightening labour market and a likely fiscal boost this year will cause underlying inflation to pick up too, prompting the Fed to tighten policy fairly rapidly. In the euro-zone, however, growth is likely to slow as real wage growth eases and political risks hit investment plans. And following a strong pick-up in 2016, economic growth in China also looks set to weaken this year as the boost from looser policy fades.
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