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Forecasters see global economy perking up

Amid worries that the world's economy may be stuck in low gear, there are signs that growth may be picking up speed, according to economic forecasters.

No one is predicting a return to pre-recession boom times. But the headwinds that have been holding back growth seem to be easing, both in the U.S. and around the world.

"After a two-year slowdown, the global economy is quickening," economists at Credit Suisse wrote in a note to clients late last week, a shift "from sub-par to adequate."

The bank now expects a gain in global GDP of 2.8 percent next year, up from a previous forecast of 2.6 percent. They expect the world's economy to expand by 2.4 percent this year.

Goldman Sachs economist Jan Hatzius is even more optimistic, pegging global growth at 3.5 percent next year.

Following the Great Recession, economies around the world were hammered by a massive debt hangover and high unemployment. Some governments responded with big spending programs to offset the collapse—but that stimulus was only temporary. More recently, the collapse of the price of oil and other commodities dealt a major blow to emerging economies that depend heavily on those exports.

However, economists like Hatzius think that those headwinds are now weakening, setting the stage for a somewhat faster pace of global growth.

Still, just about every economic forecast these days comes with a major caveat.

"The biggest short-term risks are political, most importantly the impending U.S. presidential election," said Hatzius in his latest forecast.

The U.S. is not alone in the political uncertainty that could bring major changes in economic policies. Britain's recent departure from the European Union is just the latest example of support for nationalist politics that could put a damper on global trade.

In the U.S., both candidates have proposed major changes in tax and spending policies that, if enacted, have a major impact on economic growth. Despite claims from both sides, the effects are difficult to predict.

For now, much of the outlook for the U.S. economy depends on continued gains in household incomes —and the American consumer's willingness to keep spending.


Despite the lackluster pace of growth this year—annualized GDP growth has averaged a little over one percent in 2016—growth in consumer spending has kept the economy from shifting in reverse, as businesses have cut investment, and government spending at all levels remains very tight.

That consumers spending should continue this year, according to Greg Daco, who follows the U.S. economy at Oxford Economics. He sees U.S. GDP growth rising to 2.7 percent in the third quarter—roughly double the pace from April through June. Daco sees growth settling back to 2 percent in the last three months of this year.

But consumers will keep spending only if they continue to see their wages rising, according to economist Joel Naroff at Naroff Economic Advisors.

While a tight labor market has helped boost paychecks in the last year, Naroff notes that wages and salary gains, when adjusted for inflation, flattened out in August, the latest data available.

"If workers don't have more money to spend, businesses will not see spending rise sharply, especially since people are trying to save," he said in a recent note to clients.