Weekly Economic Briefing

Stronger but riskier

17 January 2017

Global Overview

  • Traditional markers of the global business cycle continue to improve, implying upside risks to our growth expectations for 2017. Policy risks are more mixed and suggest wider-than-usual confidence intervals around any point forecast.
  • Looser fiscal policy and the maintenance of easy global monetary conditions could turn a moderate upswing into something stronger and frothier. At the same time, the prospects for global economic integration have rarely looked dimmer with adverse outcomes not priced into markets.
  • The US economy is the epicentre of these economic, policy and political forces. Recent data point to a solid rebound in growth this year, and corporate tax cuts would be earnings accretive. However, an ‘America First’ growth strategy could be counterproductive if pursued via beggar-thy-neighbour means.
  • The European, UK and Japanese industrial sectors are all responding to the improving global environment. In each, a squeeze on real incomes is coming, which could weigh on consumer spending.
  • Emerging markets have actually led the industrial upswing thanks partly to resurgent commodity prices and Chinese credit growth. But policy risks abound.
>

US

2017 could be the strongest year for nominal growth since the global financial crisis. Congress and the executive actions of the Trump administration will determine how long the upswing is sustained for.

>

UK

The resilience of UK activity indicators continued at the end of 2016, but it is the reaction of consumers to the probable squeeze in their real incomes that will tell the tale of 2017.

>

Europe

The Euro area is set to continue to see moderate growth through 2017. Inflation will benefit corporates but risks squeezing real household incomes.

>

Japan & Developed Asia

Optimism about near-term Japanese growth is building. However, there are still large hurdles to overcome before longer-term prospects improve.

>

Emerging Markets

EM economic activity is improving but policy risks loom on the horizon, both from the Trump administration’s policies and China’s response to its worsening credit imbalances.

>
 

Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the "Owner") and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided "as is" and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates.

**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time.