The level of uncertainty has risen, but the risks of recession remain low.
The expectation that the incoming Trump administration will enact sizeable fiscal stimulus has increased optimism about US and global growth, according to Nariman Behravesh, chief economist of IHS.
This attitude has pushed US stock indexes to record highs, while pushing up both interest rates (with a resulting rout in the bond market) and the dollar. While Behravesh expresses concern that higher bond yields are bad news for the emerging world, “where currencies have already taken a beating in recent weeks, these financial market gyrations are occurring at a time when commodity prices are rising and both consumer and business sentiment have improved.”
The overall effect of these trends will result in global growth, says Behravesh. From 2.4% in 2016 he predicts 2.8% growth in 2017 and 3.0% in 2018. He does caution that “high levels of political and policy uncertainty could hurt growth in 2017 and beyond.”
The following are his predictions for 2017:
1. The U.S. economy will accelerate—even before any Trump stimulus.
2. Europe’s economic momentum will slow a little, primarily because of Brexit and political uncertainties.
3. Japan’s economy will gain a little traction, thanks to a weaker yen.
4. China’s growth will grind down further, led by a housing construction slowdown.
5. Emerging markets will do better, despite recent financial market pressures.
6. Commodity prices will continue their upward trend.
7. Inflation rates will move up in many parts of the world.
8. U.S. interest rates will keep rising—also pulling rates up in some emerging markets.
9. The U.S. dollar will appreciate more.
10. The level of uncertainty has risen, but the risks of recession remain low.