if you thought 2017 was surprisingly good, just wait for 2018, says Goldman Sachs

This has been a good year for the global economy, and 2018 will follow that trend, analysts at Goldman Sachs said.

Economic growth around the world has picked up steam this year. Germany — Europe’s largest economy — grew an unexpectedly strong 0.8 percent in the third quarter. In Japan, the economy has grown for seven straight quarters. Meanwhile, in the U.S., the economy grew 3 percent in the third quarter.

“2017 is shaping up to be the first year of the expansion in which growth surprises to the upside,” Goldman analyst Charles Himmelberg said in a note to clients Thursday. “We expect 2018 to deliver more of the same.”

Himmelberg and his team expect the global economy to grow 4 percent next year for several reasons, including strong growth momentum, easing financial conditions, global monetary policy remaining “highly accommodative by historical standards” and the likelihood of fiscal stimulus in the U.S.

Stocks around the world have benefited from this year’s global economic growth. In the U.S., the S&P 500 has risen more than 14 percent in 2017. In Europe, the German Dax is up more than 13 percent year to date. In Japan, the Nikkei 225 has risen 17.2 percent this year.

U.S. policy risk is another theme Himmelberg highlights in his note titled “Top Ten Market Themes for 2018: Late-Cycle Optimism.”

“Heading into 2018, one of the top policy risks in focus for investors is the passage of US tax reform. A second policy risk which has fallen off of radar screens, but which is still active, in our opinion, is US trade policy,” Himmelberg said, noting the two risks are “potentially linked.”

Goldman currently sees an 80 percent chance that tax reform gets done in early 2018, Himmelberg said. However, “if tax legislation fails to pass, it would be the second major legislative failure during President Trump’s first year in office.”

In that scenario, he said, presidential approval ratings would likely fall, and the Trump administration would be under renewed pressure to achieve something before the mid-term elections. That something could be “a more assertive stance on trade and foreign policy,” Himmelberg said.

President Donald Trump has been striking a protectionist tone ever since he began his presidential campaign. More recently, Trump said during his first trip to Asia as president that he would readdress the balance of trade agreements between Asian countries and the U.S. as part of his “America First” policy.

These comments have also raised concern about Trump’s opposition to trade deals such as the North American Free Trade Agreement, a 1993 deal he has pushed to renegotiate or withdraw the U.S. from. During his campaign, Trump called NAFTA the worst trade deal in history.

Himmelberg also said, however, that if tax reform does go through, it puts the Trump administration in a better position to successfully renegotiate NAFTA. “As goes tax reform, so may go NAFTA.”

CNBC