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Jan 2017: Growth, risk, vulnerability

January

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Last year marked the dress rehearsal for major political and economic shifts. In 2017 the curtain goes up for the real show. The UK vote to leave the European Union, the election of Donald Trump, and Italy’s rejection of constitutional reform proposals were serious disturbances. This year the electorates’ decisions take effect.

Emerging markets could be hit next. Ultra-low rates in advanced economies motivated huge capital inflows into emerging markets. But the Fed is changing course and will raise rates at least three times this year, predicts Darrell Delamaide. This creates vulnerabilities in emerging markets both directly, in terms of capital outflows, and indirectly, through dollar appreciation. China’s slowdown and own debt problems bring more uncertainty.

David Mann emphasises the important trade and financial linkages between Asia and the US and suggests that the adjustment to higher US rates will come mainly through exchange rates. Phyllis Papadavid highlights how tighter Fed policy poses difficulties for financing infrastructure projects in Africa. The longer-term outlook for the continent is mixed. Mthuli Ncube points to the huge potential of digital financial services, while Danae Kyriakopoulou explains constraints from Africa’s productivity puzzle.

In the monthly Focus containing the Advisory Board’s 2017 predictions, we opine that many of the biggest shock waves will originate in the US. Tensions in global geopolitics, particularly in Asia and the Middle East, create substantial risks. A shift in the economic mix from monetary to fiscal policy threatens global bond markets and could also be suboptimal for the US economy, notes Steve Hanke.

Click here to read the press release.