The Leading Economic Issues for 2017
2016 has proven to have been a rather volatile year for the global economy, with much of this volatility being driven by political developments, including the rise of populist politics in many of the world’s leading economies. As we look ahead to 2017, there is more uncertainty facing the global economy than at any time in recent years, and this could prove to be yet another destabilizing factor for the global economy. Here is a list of some of the key issues that will determine the health of the global economy in 2017.
Sluggish Global Growth: For the past five years, global GDP growth has hovered at around just 3%, the longest run of such sluggish growth since the late 1980s and early 1990s. Moreover, the forecast for the global economy calls for growth rates to accelerate only slightly in 2017 and over the remainder of this decade.
Growth Drivers: China and the United States will each account for more than 20% of the increase in global economic output in 2017, as will the remainder of Asia’s economies, with Asia remaining the center of global economic growth next year. The European Union will account for 10% of the increase in global economic output next year.
The Threat of Protectionism: Support for far-right and far-left parties in many leading economies has risen due, in part, to calls for protectionist measures to be adopted that have the potential to severely curtail trade and investment. This is perhaps the single-greatest threat facing the global economy in the coming years.
Higher Growth Rates in the United States: The US’ economic growth rate is forecast to rise to 2.4% in 2017 (and 2.6% in 2018) as investment levels rise and consumer spending remains strong. A weak external sector will prevent economic growth in the US from reaching 3%, a level it last reached in 2005.
Slower Growth in Europe: Europe’s economic recovery reached its peak in 2016 and growth rates for the region as a whole will trend downwards in 2017 as the leading drivers of the region’s recent growth, Britain and Spain, record lower levels of growth. A weak euro will boost the region’s exports, preventing a larger decline in growth rates next year.
Rising Risk Levels in China: While strong consumer spending growth will prevent a sharp fall in economic growth in China in 2017, risks such as dangerous asset bubbles, overcapacity in many industrial sectors, and rising debt levels, are emerging as major long-term threats to the world’s second-largest economy.
India Leads the Way: For the third consecutive year, India will be the world’s fastest-growing large economy in 2017, with GDP growth remaining just below 8%. If India can enact more economic reforms that help it to attract more foreign investment, and if India can improve its infrastructure, growth rates could rise even higher over the longer-term
Tough Days for Emerging Markets Outside of Asia: While Asia’s largest emerging markets are growing at a healthy pace, emerging markets in Latin America, East Europe and much of the Middle East and Africa will only slowly emerge from their recent slumps. Lower commodity prices and weak export competitiveness levels have hindered growth outside of Asia in recent years.
The Search for New Low-Cost Manufacturing Locations: As production costs in China continue to rise, manufacturers are searching for new locations for low-cost production centers. Many of these countries will be found in Southeast and South Asia, providing them with a major opportunity to further boost their economic growth rates.
The Strong US Dollar: The US dollar is forecast to remain very strong in 2017 and this will have major ramifications for the US and global economy next year. This could lead to inflationary spikes in many emerging markets and will place great strains on countries where institutions hold large amounts of dollar-denominated debt.
The Threat of Another Banking Crisis: Low growth rates and low interest rates have damaged the health of many banks around the world, particularly in Europe. This is likely to lead to a number of major banks requiring large amounts of financial assistance in 2017, with a number of Italian banks appearing to be first in line for such support.