By Mike Eggleton, Senior Manager Analytics & Research
1. Firmer global economic growth
The U.S. economy is picking up, and central banks will support growth in Japan and the Eurozone. Major emerging markets Brazil and Russia will emerge from recession and expand. This should help global growth gradually speed up to 2.6% in 2017.
2. World trade recovering
World trade will improve on its weak performance in 2016. But it’s still being held back by a general slowdown in trade liberalization and weaker Chinese import and export volumes.
3. Uncertain U.S. growth
The U.S. economy should do better in 2017, as a Trump administration increases spending and lowers taxes. But if Trump follows through on some of his more controversial trade and immigration policies, we could see quite a different growth story unfold.
4. Mixed results for emerging markets
Growth across emerging markets will strengthen to 4.1% in 2017. While growth in China and India will slow down, Brazil and Russia will exit recession to make a positive contribution.
5. U.K. growth to slow
The U.K. economy has performed better than expected since the Brexit vote. But rising inflation caused by the weaker pound may start to weigh down on consumer spending, and this will hit economic growth in 2017.
6. Eurozone recovery continues
Rising wages, increasing credit availability, an exchange rate favorable to exporters and further ECB stimulus will help the Eurozone continue its steady recuperation. Its economy will expand by 1.5% in 2017. But this performance could be derailed by political uncertainty, with major elections due in France and Germany, and lingering bank issues.
7. Euro/dollar parity
Transatlantic monetary policy is diverging: As the ECB provides further stimulus in Europe, interest rates are rising in the U.S. This should drive down the value of the euro close to parity with the U.S. dollar during 2017.
8. Equities to outperform bonds
Equity returns, which outperformed bonds in 2016, will do so again in 2017.
9. Wage growth returns to advanced economies
A tightening of the labor market and changes in the makeup of the workforce will increase upward pressure on wages. The period of slow wage growth in advanced economies will end.
10. A stable yuan
Rising U.S. interest rates may promote an outflow of capital from China to the U.S. leading to a weakening of the yuan. The Chinese authorities will do all they can to stabilize the value of their currency, including imposing controls on capital outflows.
Uncertainty is a key feature of 2017. It’s easy to imagine a number of scenarios, which could derail the global economy. These include:
- The Federal Reserve responds to faster-than-expected rising inflation by increasing U.S. interest rates too quickly, killing off the recovery in the world’s largest economy.
- President Trump follows through with his campaign rhetoric on protectionism and immigration, increasing the risks of recession in the U.S., and damaging the prospects for world growth too.
- A protectionist Trump administration and the rise of populist politics in Europe could disrupt the recovery in global trade.
- A strengthening U.S. dollar and falling commodity prices damage the economic prospects of many emerging markets.
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 Oxford Economics webinar, December 2016