After a year that sprang many surprises, the global economy is into a new year, one that may hopefully see recovery in many major and commodity-led emerging markets.
The International Monetary Fund (IMF) sees a subdued global economic growth this year as the unexpected UK vote to leave the European Union (EU) creates a wave of uncertainty amid already-fragile business and consumer confidence.
Global growth will increase slightly to 3.4% on the back of recoveries in major emerging market nations, including Russia and Brazil, IMF recently said. The fund highlighted the precarious nature of the recovery eight years after the global financial crisis.
On the other hand, research firm Goldman Sachs sees a continued momentum from improved financial conditions globally. It said global real GDP growth will be at the top of the 3% to 3.5% range.
This year, one of the biggest risks seen for the global economy is perhaps in China, where rising debt levels have reached a point at which a slowdown is “inevitable” and the risks of it “being disorderly” are increasing.
Many economists anticipate a “sustained fragility” for global trade and manufacturing, given China’s ongoing rebalancing and the need for structural business-model adjustments across emerging-market economies.
Indeed, 2016 had provided more than its fair share of surprises. Trump and Brexit perhaps stand out, but there are others, including India’s currency demonetisation, Rodrigo Duterte’s election in the Philippines and Nigeria’s currency devaluation.
The global economy is still in the midst of a decade long slow growth environment characterised by an imminent productivity growth crisis.
Commodity prices especially that of oil, are still on the lower side, straining the budget of many crude exporters. On the positive side, oil is still on track for its biggest annual gain since 2009, after Opec and other major producers agreed to cut output to reduce a global supply overhang that has depressed prices for two years.
Global growth still lacks demand drivers and potential output is likely shrinking while uncertainty is increasing.
But would the situation turn around in 2017?
According to The Economist Intelligence Unit’s (EIU) Simon Baptist, the EU is again a big source of risk: France’s presidential elections could lead to a fracturing of the political union, while Greece and Italy could withdraw from the currency union.
In emerging markets, a strong US dollar and rising US interest rates mean that a corporate debt crisis has become more likely.
Nonetheless, the EIU chief economist expects global growth to accelerate from 2.2% in 2016 to 2.5% in 2017, led by a strong US economy and recoveries in many commodity-led emerging markets.
The improvement projected in 2017 rests mainly on analysts’ assumptions that the global economy will continue to be bolstered by ongoing recovery in developed economies and by stronger economic activity in emerging nations, particularly in the energy-rich GCC region.
That said, geopolitical factors, elections in various European countries and the inauguration of Donald Trump as US President will all contribute to a highly uncertain global context in 2017.
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