Four Economies That Could Crash in 2017

The global economy continues to experience relatively sluggish growth, with GDP growth rates hovering near 3% for the past five years, the longest period of such slow growth since the late 1980s and the early 1990s.  The recovery from the global financial crisis of the previous decade has proven to have been far less robust than had been hoped for, and risk levels remain dangerously high in many of the world’s most important economies.  In fact, most of the world’s leading economies are all facing higher levels of risk and lower expectations of growth in early 2017, particularly outside of Asia, the one region that is consistently driving growth for the global economy.  Meanwhile, some of the economies that had been expected to make recoveries in 2017 are already experiencing significant difficulties thanks to risk levels that have risen sharply in recent months.  Here are four of the economies that could experience a very turbulent time in the months ahead.

Mexico: No major economy has faced a greater increase in the level of risk it faces than Mexico.  In recent years, the Mexican economy has underperformed expectations, as it has grown by an average of just 2.0% over the past four years.  Now, Mexico’s economic future has been placed in severe jeopardy thanks to the election of Donald Trump as the president of the United States.  Already, the Trump Administration has threatened to impose hefty tariffs on Mexican exports to the US, a major risk when one considers that 82% of all Mexican exports go to its giant northern neighbor.  The potential loss of its favorable access to the US market would deal a massive blow to the Mexican economy, leading to lower levels of foreign investment and a major increase in unemployment.  Moreover, remittances from Mexicans working in the United States remain a major source of revenue for the Mexican economy, and these too are being placed in jeopardy by the immigration policies of the Trump Administration.  Altogether, this deterioration in relations between the US and Mexico could lead to a major decline in economic growth in Mexico in the coming years.

Turkey: Turkey is another sizeable emerging market that is facing higher levels of economic risk in 2017.  In recent years, Turkey has been unable to return to the growth levels that it achieved at the beginning of this decade, when Turkey appeared ready to achieve long-term sustainable high levels of economic growth.  Now, Turkey is facing the additional challenge of a major increase in political risk levels that are highlighted by an increase in terrorism in Turkey and last year’s failed coup against President Recep Tayyip Erdogan.  This has led to a sharp decline in business and investor confidence in Turkey and a rapid depreciation of the Turkish lira in recent months.  Should political instability continue, Turkey’s role as a manufacturing center for exports to Europe and the Middle East will be put in severe jeopardy, removing one of the key pillars of economic growth in that country.  As a result, near-term economic growth forecasts for Turkey have been reduced significantly.

Greece: Another economy facing increased risk levels this year is a familiar one, Greece.  In recent years, the Greek economy has managed to finally pull out of its devastating recession that has resulted in a 28% decline in Greek economic output over the past eight years.  This recovery was driven largely by a surge in tourism revenues, as Greece benefitted from the struggles of the tourism sectors in North Africa and Turkey.  However, most other sectors of the Greek economy remain depressed, as the level of Greece’s economic competitiveness remains very low and as business and investor confidence levels in Greece remain among the lowest in the world.  Now, fears of yet another debt crisis in Greece have intensified as Greece’s leading international creditors are debating the economic policies needed to restore the country’s economic and financial health.  While hopes for a deal among Greece’s creditors have risen in recent weeks, the potential for a Greek default on its debts will remain in place in the coming months, preventing a much-needed increase in foreign investment in Greece.  As such, Greece’s much-needed economic recovery will remain tentative at best over the near-term.

Italy: An even larger threat to the global economy coming from Europe this year is in Italy, where after 15 years of total stagnation, the Italian economy remains vulnerable to a number of internal and external shocks.  Over the past year, the Italian economy was able to stage a slight recovery as a weak euro and a series of economic reforms helped to boost growth and investment in the country’s manufacturing sector.  However, Italy’s banking sector remains at risk from high levels of bad debt that plague many of the country’s leading financial institutions. Meanwhile, the collapse of the government of reform-minded Prime Minister Matteo Renzi late last year has left a weak government in place, one that could collapse in the coming months, forcing early elections to be held.  It won’t take much for business and investor confidence in Italy to fall, and if this happens, Italy’s run of economic stagnation will continue for the foreseeable future, placing a major burden on the rest of Europe.