The industry trends underlying the pick-up in trade are encouraging. The global electronics sector is on a strong upswing. Semiconductor exports surged by 20% in 2017. This reflects both a cyclical upturn as well as a structural uptrend, as products ranging from smartphones to automobiles and home electronics become increasingly chip-intensive. The broad-based, geographical spread of the current economic expansion is perhaps the strongest basis for its durability. The rising tide is lifting most boats. The advanced economies are leading the charge. The US economy is expected to grow at or above trend, driven by strength in consumption, a healthy labour market, and better prospects for business fixed investment with the enactment of the tax reform package. 1/7  BIS central bankers' speeches  The Eurozone economy was probably the most pleasant surprise of 2017, with a strong recovery in household spending and private investment. There is still slack in the economy, suggesting that the growth momentum is likely to be sustained. The Japanese economy has recorded the longest growth streak in 16 years, with a resurgence in exports and investment. Emerging market economies – especially in Asia – are benefitting from the positive spill-overs from the advanced economies as well as healthier macro fundamentals. Emerging Asia is benefiting from the pick-up in the global electronics cycle, recovery in commodity prices, steady domestic demand, and benign financial conditions. China is likely to see a moderation in growth this year but not cool off sharply.
For investors, inflation is the biggest bear to watch because monetary policy could tighten at a quicker pace than expected by the markets. Markets are currently pricing in only about three Fed rate hikes to end-2019, so it may not take much to unsettle the markets. Equities, whose valuations are premised on low discount rates, could sell off in a hurry. “Mama Bear” - Protectionism Let me now turn to “mama bear” protectionism. And let us not take a hibernating bear for a dead one. This is a bear that may not wake up for a very long time, maybe never. But if it does, it could be ferocious. Protectionism was the biggest fear this time last year. There were populist backlashes against globalisation, represented most vividly by the results of the Brexit referendum in the UK and presidential elections in the US. The great relief of 2017 was that this risk did not materialise sufficiently to threaten the global economy or financial markets. But globalisation continues to face challenges. The WTO ministerial meeting last month ended inconclusively. 4/7  BIS central bankers' speeches  The US pulled out of the Trans-Pacific Partnership (TPP) early last year and has threatened to leave NAFTA. In Europe, the risk of a hard Brexit is not trivial. If negotiations break down, both the UK and EU will bear high disruption costs. Protectionism can do much harm to the global economy because its reach extends beyond the flow of goods and services, to the flow of capital and technology.