Political risks still weigh on global economic prospects

Political risks still weigh heavily on global economic prospects although regions around the world have started the year on a solid footing with buoyancy in markets and some growth in the factory output.But the months ahead will be critical for the global economy as fears of a growing protectionist agenda in the United States, Britain’s divorce proceedings from the European Union, national elections in some European countries and US sanctions on Iran are expected to weigh heavily on it.A recent report showed Eurozone businesses started 2017 by increasing activity at the same multi-year record pace they set in December while the US non-farm payroll report showed job growth surging more than expected in January as construction firms and retailers ramped up hiring.“Overall while this report is further evidence that the (US) labour market is buoyant the continued slow pace of wage growth means that the (Federal Reserve) will feel under no great pressure to step up the pace of monetary tightening,” Lloyds Bank said.China’s factory activity grew for a seventh month even as India’s services business contracted for a third month as firms struggled to recover from a government crackdown on currency in circulation. China and India are the two fastest growing major economies and emerging as key drivers of global growth. Growth in Britain’s services sector slowed for the first time in four months in January, dipping just below its long-run average, as businesses battled the sharpest rise in costs in more than five years.But on Thursday the Bank of England sharply revised up its growth forecast for 2017 to 2%, a view held by only the most optimistic forecaster in a Reuters poll of 50 economists taken last month.Britain’s economy unexpectedly outpaced all its major peers last year, wrong-footing those who expected an immediate hit from June’s Brexit vote.Another major concern for the global economy would be the volatility in the energy market, which at the weekend was impacted by the US sanctions on Iran. On Friday, the United States imposed sanctions on some Iranian individuals and entities, days after the White House rebuked Tehran for a ballistic missile test.The news added to volatility in what had already been a day of choppy trading for the global oil market. Oil prices rose on Friday with the front-month US West Texas Intermediate crude futures settling up 29 cents, or 0.5%, to $53.83. The contract gained more than 1% for the week.Brent crude futures settled 25 cents higher at $56.81 a barrel, giving it a 2% gain on the week, the first significant weekly rise this year.A projected stabilisation in energy and commodity prices may provide a small tailwind for resource rich economies this year, but global businesses need to stay focused on leveraging the qualitative sources of growth with investment in technology and business productivity even – or especially – in times of stagnation.They will do well by preparing for more disruptions from geopolitical tensions, policy uncertainty, financial market volatility, and rapid changes in technology.