Rahul Karunakar -
The global economic outlook remains shaky despite recent pockets of resilience, according to the overwhelming majority of economists polled by Reuters who said a rise in protectionist trade policies would hamper growth.
With elections due in a number of major euro zone countries, political change in the bloc was picked as a close second choice for potential disruptions to the global economic revival.
That uncertainty is heightened by the signs of a rise in nationalist sentiment worldwide, as exemplified by Britain’s surprise vote last year to leave the European Union and Donald Trump’s shock US election victory.
“Clearly, the geopolitical, political and economic risks facing the world are many and multifarious, and it is no easy matter to isolate those that seem most apparent to us,” wrote Mike Carey, chief economist at CA-CIB in a note.
“While 2017 does not look as if it will be the ‘year of living dangerously’, 2018 could well be more fraught.”
Reuters polls of 500 economists across Asia, Europe and the Americas reveal downgrades, or at best no change to growth forecasts compared with previous months, as well as a weaker inflation outlook across most countries.
Speculation that Trump will enact bold stimulus and reflationary measures once in office has pushed up US 10-year Treasury yields by around 50 basis points since election day, lit a fire under the dollar and sent US stocks to record highs.
But concerns over his stand on trade are starting to undermine investor sentiment, with the yen — considered a safety bet in uncertain times — back to its highest levels in more than five weeks.
“Maybe a home-grown US wage acceleration is underway, with Trump’s policies acting as a conduit to bring it all about. It’s a nice thought, but we need more substance,” wrote Jan Lambregts, global head of financial markets research at Rabobank.
“Trump’s fiscal plans are as of yet unclear in size, focus and therefore impact. Markets are currently priced for perfection when it comes to Trump’s policies. That’s a lot to ask for.”
Trump’s posture on trade has clouded the outlook for the US economy with rising risks of a trade war with China.
A strong dollar, which hit a 14-year high earlier this month and is up close to 6 per cent since the US election result, acts as a drag on the economy by making US exports relatively more expensive as well as damping down import price inflation.
Across the Atlantic, the recent optimism that the euro zone economy is on a more robust growth path has weakened and will only be maintained if there are no major upsets in several national elections there.
While euro zone inflation in December was the highest in 3-1/2 years, the outlook for price growth remained weak. Not a single economist in the poll of more than 60 said they expected inflation to hit two per cent this year or next.
“Despite the US reflation trade, we see little underlying inflation pressure in Europe. Meaningful fiscal expansion seems unlikely and structural reform has stalled or even reversed,” wrote Janet Henry, global chief economist at HSBC.
“QE is failing to lift inflation but the ECB may need to taper, if only to shift pressure back to governments.”
Britain’s inflation rate is expected to soar following sterling’s fall since the Brexit vote. But the economy will dodge a recession this year at least as the Bank of England maintains its ultra-easy policy stance.
Since Trump’s victory, expectations of protectionist policies have driven investors out of emerging markets.
But the latest poll showed Brazil will come out of its worst recession ever this year, albeit very slowly.
Despite expectations for sluggish world trade and Trump’s trade policy, China is forecast to grow 6.5 per cent this year as the government keeps up policy support.
India, one of the exceptions in emerging markets with a stable outlook, likely lost momentum after Prime Minister Narendra Modi’s ban on currency notes hurt demand and businesses. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
