The unbeaten enemy returns
Almost eight years after the worst financial crisis since the Great Depression, there has been a lot of conjecture as to when global economies will start to recover and gain traction.
By all accounts, we are seeing examples of this in certain sectors where growth is becoming apparent. However, growth in Europe has been slow; but Swiss RE pointed out in a recent presentation by some of its chief economists that this may accelerate next year.
The light at the end of the tunnel
According to Astrid Frey, Senior Economist & Deputy Head Economic Research and Consulting Macro at Swiss RE, growth with Europe will increase next year, albeit moderately. Frey pointed out that growth will accelerate from 2.5% to 2.9%.
This will largely be driven by massive acceleration in emerging economies in Latin America and Central & Eastern Europe where Brazil and Russia are among the world’s shining lights in this regard.
There will also be some gains in the US market where the country will benefit from decreased drags in the energy sector. However, policy uncertainty may offset this growth.
Hard line decisions
Any growth in the US may be offset by policy decisions that President Elect Donald Trump will introduce when he takes over the Oval Office in January.
Trump did not mince his words when it came to increased spending in military, a hard line being taken on immigration and a relaxed tax regime. All of these things, in his mind, will make America great again; whatever that means.
“When it comes to increased fiscal spending on military operations, the outlook for most sectors in the US seems positive; there will be an increase in short term and long term growth, there will be an increase in inflation and interest rates and this decision sits well with his Republican counterparts. However, his proposed policy decisions on immigration will have a negative effect on the US economy. There will be a decrease in both short term growth and long term growth; however, there will be an increase in inflation and interest rates,” said Frey.
She added that the only respite that the world can hold onto is the fact that some of Trump’s decisions don’t sit well with the majority of the Republican Party. This means that he will have to concede defeat in some areas and change his tune.
The sailing ship
The other major story from 2016 was the shock vote from Britons to leave the EU.
While the major impacts of this decision have not been felt as yet, there is a lot of uncertainty in the market. Uncertainty is expected to dampen investments and consumption. However, the weaker Pound is providing a short term boost to exports. There is little weakness in economic data thus far and economic sentiment indicators have rebounded quickly,” said Frey.
She added that the long term effects of this decision will depend on the negotiation outcome. Can the UK successfully negotiate single market access, immigration, third-country trade agreements and regulations with the EU?
A sniff of freedom?
One of the effects that the leave vote has shown is that the hose of cards that the EU has built for itself is threatening to fall down upon itself.
Italy is holding a referendum on constitutional reforms next month and the Netherlands, France and Germany are all holding parliamentary or presidential elections next year which may see more hard line politicians rise to the fore.
There is also the continued tenuous situation in Greece which while quiet at the moment may erupt into madness at any moment in time.
"While Brexit is unlikely to be the beginning of the end of the EU, there is a risk that a Euro area exit referenda could spark another financial crisis," said Frey.
Editor’s Thoughts:
It is hard to say that sanity will prevail; look at the Brexit and Trump vote as examples of what people think is conventional wisdom being thrown out of the window. While the warning signs are around, is it time to prepare for the possibility of more tough times economically? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
