The global economy, the U.S. economy and the U.S. manufacturing sector all enjoyed solid momentum heading into 2018. In addition to this, Congress recently passed major legislation on tax reform. The new tax laws not only appear to be pro-business, but perhaps more importantly, some of this nation's collective anxiety about gridlock in the nation's capital has been relieved because the president and congressional leaders finally accomplished something together.
As a result, the confidence levels for business owners, senior managers and private equity firms are presently quite high, and this means the time is ripe for making a deal. My forecast calls for a rise in the number of mergers and acquisitions in the plastics industry in 2018.
The trends in M&A activity are assessed using two metrics: the number of deals; and the size of the deals. I expect an increase in both of these metrics this year when compared with 2017.
I think the size of the M&A deals will increase this year because there is an enormous amount of unused cash sitting in the bank accounts of large private equity firms and corporations. This pool of underutilized funds will only increase once corporate tax rates are lowered and the funds belonging to multinational companies that are currently parked in overseas accounts are repatriated back to the United States.
These idle funds have been steadily accumulating for a number of years. For most of the current long and slow recovery cycle business leaders lacked the confidence that aggregate demand for goods and services in this country would rise fast enough to justify an increase in investment. Their money has not been generating any inflation-adjusted return by sitting in the bank, but doing nothing seemed preferable to putting capital at risk in a slow-growth environment.
This means that we have been in a prolonged period of underinvestment in America. This lack of investment has suppressed the rate of productivity gains, and this, coupled with slow population growth, has resulted in a long and slow recovery cycle. We have been trapped in a vicious cycle of slow investment gains and slow demand growth.
But things seem to be improving in 2018. The pace of growth in real GDP has been above-trend for the past two quarters, and the employment data continued to register strong gains. Wages are expected to expand by at least 3 percent this year, and the rate of inflation will finally escalate to 2 percent. These are strong indications that the pace of aggregate demand is rising.