World Economy
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Hopes & Risks to Global Economy

If Trump would deliver on even a portion of his trade war manifesto, the world economy would experience a profound negative shock, comparable to the last great retreat of globalization in the 1930s.If Trump would deliver on even a portion of his trade war manifesto, the world economy would experience a profound negative shock, comparable to the last great retreat of globalization in the 1930s.
The global economy is still in the midst of a decade long slow growth environment characterized by an imminent productivity growth crisis

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 sees a subdued global economic growth this year as the unexpected UK vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence, news outlets reported.

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.

Surprises

Indeed, 2016 provided more than its fair share of surprises. Trump and Brexit perhaps stand out, but there are others, including India’s currency demonetization, 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 characterized 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, Arabian Business reported.

A Turn Around in 2017?

According to the Economist Intelligence Unit’s 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.

Weighing on Trump

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.

Yet the value of such forecasts is even lower than usual given the inordinate uncertainty around what Trump will do when he enters the White House at the end of January.

Trump, lest we forget, ran a campaign of destructive economic nativism. He said he was prepared to tear up trade agreements and start trade wars, that he would force America’s allies in Asia and elsewhere to pay for their own military protection. He even spoke casually, at one point, about possibly defaulting on America’s sovereign debt.

If he delivered on even a portion of that manifesto, the world economy would experience a profound negative shock, comparable to the last great retreat of globalization in the 1930s.

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