10 Global Economic Predictions for 2017

And How These Events Will Impact Major Currencies

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2016 was characterized by volatility in the global markets due to concerns of a crisis in European banks, the results of the Brexit and its consequences, the referendum in Italy, the fascinating elections in USA and some concerns about an economic crisis in China.

All these events and many other factors as well affect the currency rates in a minor or a major manner, just like they did in 2016 in complete inverse correlation to the economic forecasts for that year.  If you choose to register with foreign exchange providers, you will get real-time emails about these events as they happen.

What’s on the economic menu for 2017? Here are 10 financial predictions for the upcoming year.

2017’s World Financial Forecast

 

1. Brexit – One of the Major Events that Affects the Global Economy

According to PwC’s chief economist John Hawksworth and senior economist Barret Kupelian:

GDP expected to fall from 2% in 2016 to 1.2% in 2017 as a result and the impact of Brexit. We are not predicting a recession and parts of the UK economy should remain relatively strong, particularly in the consumer services, tourism and technology sectors. But manufacturing and construction may continue to struggle and the City could suffer some loss of business to other EU countries due to the anticipated impact of Brexit.

These Brexit pains are by far the biggest economic uncertainty in the UK in the next couple of months and the major event that affects economic predictions for 2017. The most significant event to come is the triggering of Article 50.

Forex forecast:

Obviously, the way Brexit will be executed will have an imminent impact on the British pound. The most popular pairings like the EUR/GBP and the GBP/USD can move in up to 15%, so it is necessary to keep up to date with the EUR/GBP and GBP/USD forecast for 2017.

 

2. Return of Godzilla – Japan is the Top Market

Andrew Sheets, chief cross-asset strategist at Morgan Stanley, says Japanese market is going to be:

attractive long-run valuations and some cyclical strength and rising earnings. Next year is likely to see Japan and Europe lead the global earnings recovery.

It was also said that

investors will need to be nimble. tighter financial conditions, slower China growth and elevated policy expectations will loom large. In a late-cycle market, both ‘boom’ and ‘bust’ are more likely.

Japanese economy had a sudden growth rate increase in the third quarter of 2016 to 2.2%. The important parameter is the rate of the JPY which got stronger in the first months of last year versus most major currencies, but now is trending weaker. The weak yen will encourage exports and tourism, support corporate profits, and encourage further increases in stock prices. We concur with these assumptions, and our economic forecasts for Japan in 2017 are glowingly positive.

Full article:

 

3. Europe’s Political Changes

Looking forward, it is hard to be optimistic about Europe economy in 2017. The EU zone can be in a major problem when looking at economic growth. Many changes and a lot of adaptations are necessary to consider after the Brexit. Is the Euro strong enough to handle what’s coming in 2017?

Dr. Nariman Behravesh is Chief Economist of HIS states:

Europe faces daunting political challenges that could hurt confidence and growth next year. These include a potentially contentious Brexit, fallout from the recent referendum defeat in Italy, and upcoming elections in France, Germany, and the Netherlands. In particular, the political turmoil in Italy could trigger a crisis in the banking sector, which is already in dire straits

The 2017 EUR forecast is very hard to predict, but if we must make a punt one way or another, we agree with Dr. Behravesh.

 

4. Trump’s Administration

Donald Trump as President of the United States will contribute to a highly uncertain global context in 2017
, Focus Economics summarised.
Our 2017 global growth reflects balanced risks to the outlook. However, certain threats persist. Among these threats is uncertainty related to the economic policies of the new Trump administration, which have the potential to stir things up drastically in the global economy

Our expectations for economic policy under the Trump administration and under unified Republican control are that there will be tax reform coupled with some fiscal easing and also some increase in infrastructure spending. And we do expect that to provide a positive impulse to economic growth,
says Jan Hatzius, chief economist and head of Global Economics and Markets Research at Goldman Sachs

Forex forecast 2017 USD:

What everyone agrees on is that it may go one way or another. It’s either going back to the happy Reagan 80’s ultra-strong dollar, or going back to the 1930’s not-so-strong dollar. It is going to have an imminent impact on currencies worldwide including even the Israeli Shekel.

 

5. US Welcome Higher Growth

As a result of Trump’s election,

The promise of an important decrease in regulatory and tax burdens on U.S. businesses suggests that the U.S. economy will grow faster than most analysts expected
, according to Alejandro Chafuen, Contributor at Forbes.
The United States is still, by far the world’s largest economy. In nominal terms, it represents almost a quarter of everything that is produced in the world. U.S. trade with Canada and Mexico is equal to U.S. trade with China and Europe combined.

Private sector consumption almost definite to grow under these circumstances which will have inevitable impact on the dollar, world economy prediction experts say.

 

6. China Instability

We expect the government to continue to make a push for high levels of infrastructure spending growth, and then consumer spending we think will continue to grow at a pretty rapid clip,
says Andrew Tilton, chief Asia Pacific economist, Goldman Sachs Research.

China’s economic condition remains fragile at the end of 2016. The financial risks in this market are rising again. Most of the economic indicators point to a stability, but IMF warns that the rapid increase in the debt of the business section is increasing the chances to a financial crisis in the future. Moreover, USA and Trump’s new policy considering China, can cause a shock that will change the current delicate balance.

 

7. Is the Recession in Russia Coming to an End?

For many years, we are waiting for the Russian market to start showing signs of the end of the current recession and put an end to the dependence of this economy on its natural resources and especially the oil export. Focus Economics concluded their forecast for Russia’s economy:

After two years in recession, a return to growth is in sight. GDP contracted at the slowest pace in Q3 since the slump began nearly two years ago, following which data from industrial production in November and business surveys results in December signaled a further strengthening of economic activity in the final quarter of 2016. Forecasts are pointing to an end to the recession coming soon in 2017.

 

8. Abundance of startups

The startup model has exploded in the past few years, and startups now are of major importance to the economy. But a study by Jorge Guzman and Scott Stern of MIT found that quantity may not be helping. Instead, it’s the quality that’s important, and too many startups can compromise their impact. They explain:

The growth consequences of start-up activity are concentrated in the outcomes associated with a very small fraction of the most successful firms… The problem is that it is very difficult, if not impossible, to know at the time of founding whether or not firms are likely to survive and/or grow.

The abundance of startups can skew the data, leading to skepticism over the impact on the economy as a whole. Those financing startups may choose to withhold their layouts – on an international scale, this can lead to expected currency acquisitions not being met.

 

9. Millennial spending trends

Millennials are the generation born between 1981 to 1997. As such, they are the latest generation to become independent earners. But, burdened with student loans and born into an ever changing technological world, their spending habits are different than ever before. Deloitte University Press explains how this affects banks and other businesses, causing a shift in the driving factors of the economy:

Millennial-led households may force structural changes on the financial services industry. New data indicates that Millennials are increasingly willing to change banks based on the strength of a bank’s digital offerings. This willingness doesn’t just alter the mechanics of customer acquisition and product distribution. It also disrupts the way banks build and maintain a key driver of sustained competitiveness—a strong retail funding base.

Since digital services and shopping can be done internationally, the usual limits of corporations have been blurred. Currency from all over the world is moving freely between countries, adding complexity to the Forex markets.

 

10. Cyber-Attacks Can Be the Next Big Threat

When everything is done online in these days, it is only a matter of time until a major cyber-attack hit one of the major banks or financial institute, unless the governments will take action to prevent these kinds of attacks and will protect our most valuable assets. Paul Laudicina, a Contributor at Forbes mentions:

Given the relative vulnerability of these critical systems to cyber-intrusion, it’s actually difficult to understand why we haven’t yet witnessed a major attack along the lines of what we predict is in store for 2017. We have seen many dress rehearsals, not only in the hacked websites of some of the most sensitive U.S. government electronic sites and countless U.S. private sector companies, but in the widespread and effective Russian use of cyber intrusion to disrupt electrical power, pipeline transmission and banking transactions in Ukraine…yielding extraordinary collateral damage on that already “hard power”-compromised economy. We know that hackers, state-backed and independent, have the power to do more damage — they’ve shown us that. What we don’t know is under what circumstances and when they will strike in a more public and concrete fashion

This is exactly why startups in the area of industrial cyber security are set up and are likely to trend throughout the year (view point 8).

 

Conclusion / Bottom Line

2017 is predicted to be one of the most volatile years in the last 20 years. Uncertainty, derived from rapid and drastic political changes, is the name of the game, and can have a substantial impact on the well-being of the world’s most leading economies. Although newly elected leaders like Trump or Theresa May come with great promises, 2017 might be the end of the globalization era and a full-fledged currency war can get in progress. Now might be a great time to make foreign currency exchange, or a large money transfer, if you need any, before currency rates may move against you.