COS Financial Plan 2018 - 2022

ECONOMIC OVERVIEW

The IMF is forecasting the Chinese economy to grow by 6.6% this year. Challenges facing China include high levels of domestic debt and uneven distribution of wealth exemplified by a large rural population living in poverty. The retail sector is expected to post strong growth as income levels rise. Continued global economic growth will benefit China’s export sectors. China has vowed to defend its interests against US tariffs on solar panel imports; however, no countervailing tariff has been laid by China thus far. UNITED STATES The US Federal Reserve (Fed) is forecasting domestic GDP to grow between 2.2% to 2.6% this year. The unemployment rate is expected to fall around 3.9%. A tightening labour market will push up wages, increase disposable income, and further fuel US consumer consumption. The Fed raised their key interest rate three times last year and is expected to continue its path of monetary tightening in 2018. The central bank has signalled that three additional rate increases are possible this year given the strong labour market and strengthening economy. Increased consumer demand will provide a boost to inflation. If inflation rises quickly, the Fed may be inclined to increase their key interest rate at a faster pace than planned. The US dollar will continue to strengthen against other currencies as interest rates ascend, putting increased pressure on holders of US denominated debt. Much anticipated tax reform was delivered by the Trump administration in January 2018. The tax code changes cut the corporate rate from 35% to 21% and also lowered taxes for individuals. The tax cuts are estimated to cost $1.4 trillion over 10 years. Opponents argue that the reforms disproportionately benefit the rich. Supporters feel that the overall economy will benefit as multinational corporations will choose to repatriate profits to the US and increase business investments. As an example, Apple Inc. announced that it will bring home almost $250 billion in oversees cash which will result in approximately $38 billion in tax revenues to the government. Business investment and consumer consumption should see an uptick due to the tax cuts. Some large corporations have announced that they will share their tax saving with employees by way of increased wages, benefits or bonus payments. With tax reforms underway, the Trump administration is expected to turn its attention to infrastructure spending. The President campaigned on a promise of $1 trillion in infrastructure spending. It remains to be seen if the administration will provide clarity on its plan going forward. Uncertainties persist around the US’ trade policies. Several rounds of North America Free Trade Agreement (NAFTA) renegotiations were held with no progress made on contentious issues such as autos, the dispute settlement process and the expiration clause. The US Trade Representative’s demand for a higher share of US sourced content in automobiles manufactured in North America was rejected by Mexico and Canada last November with no counter proposals made to date.

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2018-2022 Financial Plan

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