Four ways the world's economy could change in 2017 - PwC
For many economies, 2017 will be a year of expectations managed by political uncertainty and lagging world trade, according to PwC.
The Big Four firm's report said that globalisation is due to take a back seat in the next 12 months, with world trade predicted to grow more slowly than global output for the third consecutive year.
The resurgence of economic nationalism, a policy touted by the new Republican government in the US, means World Trade Organisation (WTO) rules are predicted to come into play and the trade route between the US and China may come under pressure.
This is a phenomenon likely to have long-term effects should the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) disintegrate in the near future.
However, this does not necessarily mean a bleak outlook for economic growth.
Here are some of PwC's key predictions for the countries and macroeconomies businesses should watch in 2017.
1. United Kingdom
The UK led the G7 rankings in 2016 with GDP growth of around 2%, but is expected to dip slightly in 2017 due to the gradual drag on business investment originating from Brexit-related uncertainty and the weaker pound.
A recession is not thought to be likely, however, and the consumer services, tourism and technology sectors are thought to remain strong. Manufacturing and construction, on the other hand, may continue to struggle in 2017 and London may see some loss of business to other EU countries.
John Hawksworth, Chief UK Economist at PwC, said: "We expect a key feature of 2017 to be a re-emergence of inflation, which we expect to rise to around 2.5-3% by the end of the year, squeezing real earnings growth. This pay restraint should, however, also help to avoid any significant rise in unemployment.
"We expect the Bank of England to keep interest rates on hold for at least the first half of 2017, waiting to see how the economic impact of Brexit unfolds. After boosting public investment in his Autumn Statement, the Chancellor is also likely to be in ‘wait and see’ mode in what could be a relatively boring Budget in March."
Irish GDP growth is expected to pull ahead from other Eurozone 'peripheral' economies, expanding by more than 3% per annum in 2017. The 'core' nations will be led by France and the Netherlands, expected to continue growth at a rate of 1.5%.
In terms of the labour market, employment in the core economies is expected to hit an all-time high of approximately 97 million. However, advancement in the peripheries may outperform that figure by around 100,000 new jobs.
Several political events, including elections in Germany, France and the Netherlands, may drive higher levels of uncertainty in the Eurozone. The economies in Italy and Greece are thought to be especially at risk to this type of volatility. Spain is also likely to hold a referendum on the future of Catalonia.
3. United States
The US is expected to be the fastest growing G7 economy, having been estimated to grow by around 2% on the back of strong job creation and household consumption. PwC predicts the country will contribute around 70% to G7 growth overall.
The Federal Reserve will likely continue to tighten monetary policy, a practice that is generally associated with an approximate 2.3 percentage point increase in the target rate for 12 months. The Fed’s latest projections, however, show a much more modest tightening.
Policy may tighten faster than currently suggested depending on the pace, size and implementation of the new administration’s fiscal plans. In particular, the government may choose to lower taxes and pursue plans to boost spending on infrastructure.
Asia will remain the fastest growing region of the world overall, with Indonesia on course to become the world’s 16th trillion dollar economy, drawing some attention away from the traditional hubs of China and India.
In comparison, India’s contribution to world GDP growth could reach almost 17% this year and Chinese growth is projected to remain at around 6%. If it manages to maintain growth at 6.5% per year, however, it will add an economy 'the size of Turkey’ to total global output.
It should be noted that China’s non-financial sector debt stands at more than 250% of GDP and if non-financial debt builds at the same average rate as it has since 2010, the country could add over $650 billion to its total debt pile by the end of 2017. Last year, China’s credit to GDP gap exceeded levels which indicate a risk of crisis within the next three years.