What course will the global economy take in 2017?
After a protracted period of sluggishness, global activity has begun to pick up and is expected to continue this way in 2017.
This bright spell is driven notably by recoveries in emerging economies. Furthermore, the continued use of stimulus policies at the start of the year by the Chinese authorities should help to stabilise economic growth in China, and at the same time benefit its trading partners. This situation, combined with the agreement reached between OPEC and several other oil producing countries to reduce production, has helped bring about a recovery in commodity prices, which is good news for emerging economies. In Russia, the rise in commodity prices should also underpin a return to growth in 2017.
In the US, the acceleration in growth seen at the end of 2016 is likely to continue in 2017, albeit with existing uncertainty further heightened by the lack of clarity on the future economic policies of the Trump administration. Currently, the Group's projections are based on the assumption that potential protectionist measures will remain limited and that fiscal stimulus measures representing 1% of GDP will be implemented in 2017-2018, thereby supporting activity. This, in return, will accelerate inflation as the US economy is already close to full employment. Consequently, the Federal Reserve is likely to raise its key interest rate at a more rapid pace than previously anticipated and the dollar is likely to remain strong.
Despite this more upbeat environment, activity in Europe will struggle to gain ground. The recovery of energy prices will weigh on household purchasing power and prevailing political uncertainty in the eurozone, provoked by a busy election schedule (the Netherlands, France, Germany and probably Italy), is likely to slow down corporate investment. The start of Brexit negotiations will also have a similar impact. Given these weaknesses and despite a moderate increase in inflation, the European Central Bank will probably continue its asset purchasing programme throughout the year, keeping interest rates and the euro at low levels.
These perspectives depend obviously on several factors. In the first place, political uncertainty will continue to dominate. Fears could heighten surrounding emerging economies’ capacity to withstand an overly rapid increase in US interest rates, notably due to their dollar-denominated debt. Lastly, in China, the authorities continue to face the need to rebalance their economy, which could cause a marked slowdown in growth.
After several years of weak growth, 2017 is expected to bring a welcome upturn in global economic activity, leading to a modest increase in inflation. However, this bright spell remains subject to significant unknowns and, in many countries, is likely to be insufficient to offset the ongoing consequences of the financial crisis.