Global Economic Backdrop
2017 global GDP is expected to accelerate, albeit with high uncertainty regarding the policy stance of the US (fiscal, trade) and its consequences, particularly for emerging markets.
The inflation outlook is clearer as inflation expectations are increasing, wage pressures are building, particularly in the US, and the annual rate of change of commodity prices is positive.
Fiscal policy in advanced economies will be supportive of growth for a second consecutive year, albeit only slightly, but following several years of consolidation. The expected US package would support the economy towards Q4:17/ H1:18.
Monetary policy remains accommodative, with central banks’ balance sheets expanding significantly during the year. However, central bank liquidity has likely reached its peak.
The Fed is expected to proceed with 2 or 3 rate hikes, while the BoJ will continue with yield-curve targeting. The ECB will likely signal in Q2/Q3 the gradual termination of its QE purchases.
Risks are still skewed to the downside, in our view. The US fiscal package may be smaller than expected, while protectionist measures and trade tensions could derail global economic activity.
Emerging market risks include high private sector debt levels and increased capital outflows.
Adverse political (French elections, “Brexit” negotiations) and geopolitical risks, if materialized, could create significant economic and market turmoil in Europe.