Market Outlook 2017

The market outlook for 2017 seems to be set for more uncertainty and volatility after the surprising turn of events in 2016. Let us take a look at some economic data and events which will set the tone of the global economy in 2017.

United States

Table 1.1: US GDP Annual Growth Rate (Jan 2006 to Sep 2016)

*GDP annual growth has stayed within a healthy range of 1% - 3% since 2011

Source: www.tradingeconomics.com | US Bureau of Economic Analysis

Table 1.2: US Unemployment Rate (Jan 2006 to Nov 2016)

*Unemployment rate has decreased steadily from 2010 onwards to reach a healthy range of 4% - 5%

Source: www.tradingeconomics.com | US Bureau of Labor Statistics

Table 1.3: US Inflation Rate (Jan 2006 to Nov 2016)

*Inflation has been in a healthy range of 1% - 2% since 2012 (except for 2015)
*Inflation is rising back to the healthy range after the decline in 2015

Source: www.tradingeconomics.com | US Bureau of Labor Statistics

The data above (Table 1.1 to 1.3) implies that the U.S. economy is showing signs of recovery with GDP annual growth rate at 1.7%, unemployment rate at 4.6% and inflation rate at 1.7%. The data suggests that the U.S. economy is stabilizing and heading towards a ‘Goldilocks economy’ which will be ideal for investing. Also, the Fed has revised the interest rate in December 2016 and has hinted that there may be more hikes to come in 2017 depending on the future economic data. These seem to imply that U.S. is likely to first experience growth and slowly ease into stabilization afterwards in 2017.

Donald Trump’s election victory has sent shockwaves throughout the world. It remains unclear how viable are Trump’s policies and how he is going to implement them. In general, Trump’s policies are seen to be pro-growth and pro-inflation with tax cuts and investments in both infrastructure and national defence. However, Trump has threatened to tax Chinese goods, build a wall across the Mexican border and aggressively pursue joint and coalition military operations to crush terrorism. If these were to happen, it will take a further toll on the U.S. economy, cause a freeze in global economic relations and ignite a trade and currency war.

*Click here to read more on Donald Trump's policies.

Eurozone

Table 2.1: EU GDP Annual Growth Rate (Jan 2006 to Nov 2016)

*GDP annual growth is in a healthy range of 1% - 2% since 2014

Source: www.tradingeconomics.com | Eurostat

Table 2.2: EU Unemployment Rate (Jan 2006 to Nov 2016)

*Unemployment rate is on a downtrend since 2014

Source: www.tradingeconomics.com | Eurostat

Table 2.3: EU Inflation Rate (Jan 2006 to Nov 2016)

*Inflation is showing signs of recovery in 2016

Source: www.tradingeconomics.com | Eurostat

The data above (Table 2.1 to 2.3) suggests that the Eurozone is showing signs of recovery with GDP annual growth rate at 1.7%, unemployment rate at 9.8% and inflation rate at 0.6%. However, political risks in the Eurozone threaten to impede recovery in 2017. With Brexit adding more woes to the already troubled Eurozone, here comes an election cycle which will greatly influence the future economic climate. It starts with the Dutch general elections in March, French presidential elections in April/May and German federal elections in October.

Unknown political developments together with Brexit and Trump’s presidency, adds more pressure on the current economic environment. Hence, economic growth is likely to be volatile amid heightened uncertainty in 2017.

China

Table 3.1: China GDP Annual Growth Rate (Jan 2006 to Nov 2016)

*GDP annual growth is on a gradual decline since 2010

Source: www.tradingeconomics.com | National Bureau of Statistics of China

Table 3.2: China Unemployment Rate (Jan 2006 to Nov 2016)

*Unemployment rate is in a healthy range of 4% - 4.1%

Source: www.tradingeconomics.com | Ministry of Human Resources and Social Security of the PRC

Table 3.3: China Inflation Rate (Jan 2006 to Nov 2016)

*Inflation is in a healthy range of 1% - 3% since 2012

Source: www.tradingeconomics.com | National Bureau of Statistics of China

The data above (Table 3.1 to 3.3) shows that China’s economy growth has slowed down with GDP annual growth rate at 6.7%, unemployment rate at 4.04% and inflation rate at 2.3%. China experienced exponential growth in the past few decades and it has become the world's second largest economy. However, China’s growth has been gradually slowing down since 2012 and it is shifting from a manufacturing driven economy towards a services driven economy in hopes of sustaining the country’s growth.

In the Central Economic Work Conference (CEWC) on December 2016, China has emphasised on maintaining stability while seeking progress. This suggests that China will be sustaining its economic growth at the current level by maintaining a prudent neutral monetary policy and a proactive fiscal policy while tackling its mounting corporate debt and rising property prices in 2017.

The fiscal stimulus in the U.S. may aid China in sustaining or improve its economic growth in 2017. However, with Trump straining the relationship by threatening to tax Chinese goods and making negative comments about China, a trade or currency war may ensue between these two superpowers.

Summary

Based on the current economic data above, growth in 2017 looks favourable as U.S. is pushing for growth while the Eurozone is stabilizing and China is taking measures to sustain its current economy. Political risks are the major concern in 2017. The main risk factors to take note of are what and how Donald Trump and the respective winners of the Eurozone elections will implement their policies, hence setting the economic direction forward. Therefore, global economy is set to be more volatile as political risks increases the uncertainty of the economic climate in 2017.

Picture credit: Designed by Freepik