Global economic growth in 2017: recovery with risks

In its latest outlook for global economic growth the World Bank is very optimistic for the coming year. After a weak 2016 it expects growth to recover in the industrialised countries, but above all it forecasts an improvement in the emerging markets, which last year were marred in some cases by ongoing crises, for example in Brazil, Argentina and Russia. In 2017 these countries are expected to stage a recovery, albeit a rather faltering one. And while in China growth will probably also continue to decline slowly in 2017, in India it is likely to accelerate again in the course of the year after the problems caused by economic policy.

However, the World Bank’s economists also emphasize the risks that hang over the outlook. These lie mostly in the realm of economic policy. Admittedly, the Brexit vote and the outcome of the US presidential elections have not yet had any impact on the real economy and after the initial upset they were well received in the financial markets. But they have led to greater uncertainty about future economic policy, especially with regard to possible protectionist tendencies. Nor is there any clarity at the moment about the outcomes of upcoming election dates in Europe. It is, for example, unclear whether the euro supporters will come out on top again in the most important countries. This uncertainty alone could already curb global economic growth. It could lead to increased risk premiums and to the postponement of investment projects. Consumers might also prefer to put off big-ticket purchases for the time being and increase their precautionary savings.

Overall, there is undoubtedly much to suggest starting the new year on an optimistic note as far as the economy is concerned. The world economy is on the way to recovery after several difficult years. This is also shown by the positive leading indicators. But the risks threatening this upbeat scenario cannot be dismissed, either. They are primarily the result of economic policy. If the protectionist forces get their way, this could have a negative impact on the world economy for many years to come.

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