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.
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.