International experts believe that 2017 will not bring significant improvements to the world economy. With risks such as economic and geopolitical instability coming to the forefront, the world market faces several challenges for the year ahead. Below are the primary challenges faced by the global economy in 2017.
The IMF (International Monetary Fund) warns that rising protectionism is a precursor of flat economic growth. While both of the US’ presidential candidates were opposed to the passage of the TPP (Trans-Pacific Partnership), president-elect Donald Trump has threatened a withdrawal from NAFTA. Trade-restrictive policies are sometimes viewed as a type of malpractice that can inhibit jobs, wages and economic growth, further weakening the world’s financial markets.
With France, the Netherlands and Germany having national elections in 2017, and all three countries having far-right candidates, there’s a significant potential for the protectionist policies mentioned above. However, such policies form a background for 2017’s most important geopolitical event: the UK’s gradual exit from the EU. While Britain has had a lesser influence in the world’s stock markets in the past few years, the Brexit vote’s impact was felt in the global market.
As central banks reach the outer limits of expansionary policy tools, the global economy 2017 may suffer. A lengthy period of QE (quantitative easing) has increased the central banks’ balance sheets by 300%, most of which consists of each country’s government bonds. While the practice of QE helps markets maintain liquidity in the short term, declining returns mean that the end of the easing is near.
Commodity prices will recover only modestly in 2017, after wiping out economic growth in Nigeria, Russia, Brazil and other emerging economies. A softening of the commodities market has made a significant contribution to the growth of the global economy, but some emerging markets will not fare well, particularly if OPEC does not reach an agreement on a decrease in oil production.
The economic contraction of 2016 and continued stagnant growth in developed countries may suggest that 2017 will present unique challenges for the world’s economy. World leaders are facing a monumental task in keeping things on track for the coming year, even as external threats such as wars and terrorism add to their challenges.
Paul Baggetta is the Founder & Principal of Baggetta & Co. Paul Baggetta has been a Taxation Accountant for over 36 years, a Financial Planner for over 18 years and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading), and operated his own Real Estate business for property investment clients for over 5 years as a second business.
Financial planning services provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.
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The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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