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The Biggest Hurdles Facing the Global Economy in 2017

By on April 23, 2017

The global financial pundits are apprehensive that 2017 might not make any big economic shift from 2016 due to a slow global economy. Given that there are many risks in the offing, plus geopolitical as well as economic volatility, the following are the main hurdles facing the world economy in 2017.

Brexit and Instability in Europe

With general elections set to take place in Germany, France and Netherlands this year and each having a far right candidate, there is a big likelihood of detrimental protectionist strategies in Europe.

Nevertheless, these might be nothing compared to the most significant geopolitical phenomenon which is to take place in 2017; the beginning of Britain’s gradual exit from the EU.

Britain’s sway in the world economy might have dwindled in the past few decades, but the shock of its June 2016 Brexit vote reverberated across all currencies and markets the world over. There is every indication that markets are still anxious about Brexit. The longer the debacle goes on, the more the attendant uncertainty that is likely to cause a substantial damage to the entire European economy.

Protectionism

The IMF has raised alarm on the increasing populism and protectionism, which the fund says have a direct correlation with a declining growth in the global economy. In its recently released “World Economic Outlook” report IMF sounded a warning that “turning back the clock on trade can only deepen and prolong the world economy’s current doldrums.”

In last year’s American presidential election campaigns, both presidential frontrunners indicated a withdrawal from the nation’s customary promotion of free trade. While Democratic nominee Hillary Clinton indicated that she doesn’t support the Trans-Pacific partnership, the current president Mr. Donald trump even made a threat of completely withdrawing from the North American Free Trade Agreement.

The International Monetary Fund director, Christine Lagarde, referred to any policies restricting trade as some kind of “economic malpractice” that could easily hinder growth, creation of jobs and wages, as well as weaken the global economy.

Monetary Policy Hitting the Limits

A scenario possibly happening by now as central banks hit the limits of any expansionary financial guideline tools available to them, this year might be the year of reckoning for some of them.

Quantitative easing (QE) for the last eight years, since the global financial crisis, has seen balance sheets of the world’s four biggest central banks shoot from $6 trillion to $18 trillion, with the bulky of it made up of own government bonds. This might have succeeded in sustaining short-term liquidity in the markets; QE’s diminishing returns might mean that the end is not far. Speculation is already rife that the Bank of England (BOE) and the European Central Bank (ECB) might be considering tightening monetary guidelines. If the BOE or ECB decide to pull the plug on QE this year, markets will painfully feel the impact.

Commodities Recovery Turn Around

Having obliterated economic growth in Nigeria, Russia, Brazil and many other formerly considered fast rising economies in 2016, commodity prices will only experience a low revival in 2017. This is according to IMF’s October 2016 report.

Emerging economies have been unevenly hurt by softer commodity prices, after recently making disproportionate contributions to the world economic growth. As much as emerging Asia, especially India has largely appeared resilient, the IMF is anxious that South America, sub-Saharan Africa, the Middle East, and the CIS region might not fare on so well, especially if OPEC doesn’t strike a deal regarding cuts on oil production.

Tighter Monetary Guidelines Weighs

The October 2016, IMF report projected monetary guidelines in developed economies would get even tighter in 2017, regardless of the calls for government to increase spending to spur growth.

The Bank of America Merrill Lynch conducted a survey of money managers recently, in which it was found out that about 48% are of the view that the world monetary policy is still too tight. This notion was echoed by several other economic pundits who are anxious about the increasingly inefficient monetary policy.

However, as the West pulls the plug, it can only hope that China continues with its monetary overindulgence, which is informed by the need to keep economic growth at politically impressive levels in the run-up to this year’s 19th national Congress.

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Global Economic Growth; I.M.F. Raises 2017 Outlook

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The International Monetary Fund has raised its global economic growth outlook, pointing to a post-election rise in confidence in the U.S., a surge in global trade and improved prospects in upcoming markets.

The glowing prediction is something of an about turn for the fund, which has been quite uninspiring in the recent past about the global economy’s ability to manage any sustained development.

While delivering the spring edition of I.M.F’s World Economic Outlook, a comprehensive report on the global economy that is revised many times annually, the fund’s economists grabbed the Tuesday opportunity to raise alarm against protectionist trends adopted by developed economies. The fund predicted a growth rate of 3.5% in 2017 Vis a Vis that of 3.1% in 2016.

As the fiercest advocate of customary free-trade policies, the I.M.F. has, a good part of the last one year, been arguing that trade, devoid of any protective barriers such as duties and tariffs is critical to a robust world economy.

Last week the I.M.F. managing director, Christine Lagarde, warned in her speech of a “Sword of protectionism” that threatens to hamper the expansion ability of the global economy.

The fund’s head avoided making any mention of president trump as well as his pledge to put the interests of America first regarding any signing of trade deals with business partners such as Mexico and China.

However, through the press, speeches, as well as confidentially voiced concerns; the fund has hardly disguised its apprehensions that any anti-trade talk could hinder the international economic recovery.

The I.M.F’s chief economist, Maurice Obstfeld – at a news conference on Tuesday – said that, “One salient threat is trade protectionism, leading to trade warfare.”

According to I.M.F, after a growth of 2.2 percent last year, the international trade volume is projected to expand by 3.8 percent this year and rise to 3.9 in 2018.

The U.S. economy’s growth rate was predicted to rise by to 2.3% in 2017 and 2.5% next year. This is up from 1.6% in 2016.

Developing countries were projected to grow at 4.5% in 2017 and 4.8% in 2018, a remarkable progress from the 4.1% in 2016.

According to Mr. Obstfeld, “There has been a stream of continuing positive data that we have seen since the middle of 2016,” he added that the pickup in industrial production, manufacturing and trade is what is fueling their confidence that this year, as well as next year, will be considerably better than 2016.

In its analysis, the I.M.F. pointed out a pickup n commodity prices as well as indications of improved investment spending as the main reasons that have led to the better outlook in the developing world.

A big fraction of this demand has been brought about by China, which reported 6.9% first quarter economic growth, on Monday. This happens to be its highest quarterly growth tally in the last two years.

According to economists, the increase in public and private investment is the key thrust behind this surge in activity. Recent data shows a 20% increase in Chinese import hence the boom. In the report, the fund projects that the growth of the Chinese economy will slow down a bit to about 6.6% in 2017 Vis avis  that of 6.7% in 2016.

In spite of the recent surge, a number of economists believe that any pace close to 7” is unsustainable. The recent indications of a slowdown in credit are enough proof that the Chinese economy might run out of steam in the future quarters.

The fund has also taken note of the attendant risks that China faces by relying too much on credit especially shadow financing – which is hard to pin down, to spur growth.

The fund’s chief economist, mr. Obstfeld, also said that growth has mainly remained dependent on domestic credit growth, which is so rapid to an extent that it may bring about financial stability issues in future . He also warned that these problems are likely to spill to other countries in future.

But all in all, the general verdict of the I.M.F is that, the global economy is leaded in the right direction. In spite of the existing concerns of protectionism, several indicators show a positive expansion of the global economy.

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Three killed in anti-government riots in Venezuela

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At least three people have died in the ongoing riots against Venezuelan President Nicolas Maduro’s government.

A woman in San Cristobal, next to the Colombian border, and a teenager – in the capital Caracas – have been reportedly shot dead. A national guardsman is also said to have been killed in the southern part of the capital.

Several people, running into tens of thousands, poured into the streets to demand for fresh presidential elections and the unconditional release of the imprisoned opposition politicians. President Maduro has claimed that the opposition attacked the police.

He also accused the protesters of looting shops, adding that over 30 people had been arrested.

The government supporters also held a parallel rally in Caracas.

Opposition leader Henrique Capriles called for another round of mass protests on Thursday.

In spite of the fact that Venezuela has the largest proven oil reserves in the world, the country has suffered for many years from rampant crime, high inflation and a biting shortage of basic commodities.

What Is The Cause Of The Unrest?

The protests that have erupted across the country, are expected to be the biggest in three years, and aimed at exerting pressure on President Maduro to come to the negotiating table with the opposition in order to find an amicable way of mitigating the country’s economic crisis.

The anti-government protests have been dubbed Venezuela’s “second independence day,” by the protesters. IMF says that inflation is expected to hit the 700% mark this year in the country. With elections not due until late next year, the opposition claims that the country is on the brink of collapse.

The latest crisis was triggered by the Supreme Court’s move last month to formally take over power from the opposition-dominated parliament. The court was, however, forced to rescind its decision after three days.  But it would appear that it was already too late for their retreat to avert a new wave of demonstrations.

The country has now experienced weeks of ugly clashes between the police and protesters. The most recent killings bring the total number of people who have died in the riots to at least eight, with scores seriously injured.

The country is deeply divided into two groups. We have Chavistas, a name referring to the supporters of the socialist policies of the late President Hugo Chavez, and those who are completely tired of the 18 years that his United Socialist party (PSUV) has been in power and can’t wait to see its exit.

After the death of the socialist leader in 2013, another PSUV member – Nicolas Maduro- took over power riding on a promise to perpetuate Mr Chavez’s policies.

Chavistas are full of praises for the Mr Chavez and is successor for utilizing the country’s oil wealth to close the gap of inequality and for getting numerous Venezuelans out of poverty.

However, the opposition claims that since the PSUV took the reins of power in 1999, the party has completely dismantled the country’s democratic establishments and mishandled the economy.

On the other hand, Chavistas argue that the opposition is elitist and in the habit of exploiting poor Venezuelans to enrich themselves.

They also claim that the opposition leaders get funding from the United States, a country that has had frosty relations in the recent past.

What Happened To President Maduro’s Popularity?

Perhaps the biggest problem Mr Maduro is facing is that he is been unable to inspire Chavistas in a way similar to his predecessor. His government has been also been affected by the plummeting oil prices.

Oil covers almost 95% of the country’s export proceeds and was used to fund a number of the government’s charitable social programs which, as per the official figures, have provided over one million poor citizens with decent homes.

The shrinking oil revenue has pushed the government to put a hold on its social programs leading to a loss of support among its most ardent supporters.

However, apart from the traditional divisions, a series of recent events have triggered the tension between the government and the opposition leading to a fresh eruption of protests. The main trigger came from the surprise ruling of the Supreme Court on March 29, that it was assuming the powers of the opposition-dominated National assembly.

The opposition claimed that the move grossly undermined the customary practice of separation of powers and they could not take it lying down. This marked the onset of the massive protests.

 

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Don’t you mess with us” North Korea Warns as U.S. ponders on Next move

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The United States is contemplating on means of applying pressure on North Korea regarding its nuclear programme, says Secretary of State Rex Tillerson. However, through the state owned media, North Korea has warned the U.S. of what they termed as a “super-mighty pre-emptive strike” telling them not to “mess with us”.

The American president Donald Trump has adopted a hard-line stance with North Korea’s controversial leader, Kim Jong Un, who has repulsed reprimands from China – his country’s only key ally, and gone ahead with his missile and nuclear agenda. This is in contravention of the sanctions of the U.N. Security Council.

The isolated North Korea more often makes threats of demolishing South Korea, Japan and the U.S. and has shown no signs of dropping its hostile demeanour even after their unsuccessful missile test on Sunday, which came hot in the heels of a major exhibition of an assortment of missiles paraded in Pyongyang.

On Wednesday, Tillerson revealed to news reporters in Washington that the U.S. was reviewing every status of North Korea, regarding state sponsorship of terrorism and several other ways through which the regime in Pyongyang can be pressured to re-engage on a different level than in any past talks.

Mike Pence, The U.S. Vice President, has repeatedly said while on a tour of Asian partners that, the “era of strategic patience” With the Pyongyang regime is over.

The United States House of Representatives Speaker Paul Ryan has also hinted while on a visit to London, that a military alternative must be one of the options on the table to apply pressure on North Korea.

Referring to the defiant North Korean leader, he said, “Allowing this dictator to have that kind of power is not something that civilized nations can let happen.”  He added that he felt optimistic by the outcome of concerted efforts to collaborate with China to mitigate tensions, but it was intolerable that North Korea might possibly have the ability to attack allies with nuclear weapons.

South and North Korea are technically deemed to be still at war since their 1950 – 1953 war never ended in a peace treaty but a truce.

In a meeting with top officials on Thursday, the South Korean acting president Hwang Kyo-ahn, severally told the security and military to remain vigilant.

According to the Defence Ministry, the United States and South Korean air forces were undertaking an annual training exercise. The exercise code named Max Thunder goes on till April 28. North Korea usually refers to such exercises as invasion preparations.

Powerful ANTI-MISSILE SYSTEM

On Wednesday, South Korean presidential candidates sharply differed in a TV debate, over the anticipated Terminal High altitude Area Defense (THAAD) anti-missile system to be supplied by the U.S.; a fact which has not gone down well with China. Moon Jae-in, the presidential front runner, came under sharp criticism for leaving his options open before the country’s elections on May 9.

Pence and Hwang, on Monday, reiterated their intention of going ahead with the THAAD mission, though the ultimate decision will be made by the next Korean president. But according to China, the anti-missile system’s potent radar system threatens her security.

North Korea issued a warning of a nuclear attack against the U.S. if they feel provoked. They claim to have developed a missile that is capable of striking the U.S.’s mainland. However, experts and officials think North Korea is far away from perfecting the requisite technology, which entails nuclear warhead miniaturizing.

Us, RUSSIA DISAGREE

On Wednesday, Russia and the U.S. differed at the United Nations, over a Security Council statement drafted by the United States to castigate North Korea’s recently unsuccessful ballistic missile tests. Diplomats intimate that China was in agreement with the statement. Such statements made by the council which consists of 15 members, have to be reached by consensus. Russia issued a statement requesting to be included.

There has been some uncertainty over the whereabouts of a group of U.S. aircraft carriers, after last week’s insinuation by President Trump that he had dispatched an “armada” as a warning shot to North Korea even though the ships were still a long distance from the Korean waters.

It would appear that, the belligerent posturing of the defiant republic of North Korea is far from over, if recent developments are anything to go by.

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