The year 2017 will be a key year for the global economy

Key events that will shape global economy in year 2017

The year 2017 will be a key year for the global economy in more ways than one. There are few key events that could shape the structure of things to come in the next year. Here are a few of them…

All eyes on Donald Trump… 

One of the key persons to watch for this year will be Donald Trump. He is likely to lead to a redefinition of political and economic equations. Firstly, there is massive tax cuts planned. He has also proposed to invest nearly $1 trillion in infrastructure. Secondly, the US is likely to get less involved in global affairs and become more inward looking, including NATO funding. Thirdly, the US plans to build closer ties with Russia, something which will mark a shift from 70 years of US policy. Lastly, Trump plans to come down heavily on low-cost businesses from China and to a lesser extent from India. All these will be key events to watch out for next year.

Next steps for BREXIT… 

Britain may have voted to exit the EU but the real execution will begin in 2017. UK needs to renegotiate its trade treaties with the EU nations afresh. We have already seen businesses planning their move out of London. This trend could get accentuated in the year ahead. At the other extreme, there is the possibility that BREXIT may not happen at all. If the costs of BREXIT are too steep, it may just be abandoned.

Outflows from EMs…

Like it or not, Emerging Markets (EM) are likely to see outflows. The rate differential with the US may be just too attractive for global traders and fund managers. With a consistently strong dollar, the asset managers may just prefer dollar denominated assets. Capital outflows typically have a deep impact in the form of a weaker currency and wealth destruction in equities. But the bigger worry is that EMs may be inclined to impose capital controls. While it is true that capital controls have not worked in the long run, it may prevent a run on their currencies in the short to medium term. This will be something to watch out for in the coming year.

Oil could be the big story…

After a 2 year bear market, oil could be in for an interesting year. Firstly, the price of oil is already moving up due to the supply quotas imposed by OPEC and its friendly nations. The real question is what happens to the massive stockpiles of oil, almost 8 billion barrels. Also, if the US shale production starts entering the market at higher levels, then oil prices may fall once again. Either ways, year 2017 could be decisive as far as oil prices are concerned. OPEC realizes that they cannot sustain their economies at these oil prices. The US is also realizing that shale has been financed at high costs and low oil prices cannot sustain. Higher prices may be the answer! ©

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