Analysis and Forecast

2017 World economic prospect

Update at: 01/12/2016 04:21:00

The US’s economy in the first 11 months has stabilized, although at a low space. The US economic growth rate in the first quarter and second quarter were only at annual rate of 1.1% and 1.4% respectively. However, the growth rate of the third quarter has been improved strongly to 2.9%. The main drivers of US economic growth in the third quarter include stronger private investment, exports and government expenditure. The unemployment rate was still low at 4.9% in October.

The European’s economic growth has been improved in the third quarter, at 0.3% on annual basis and 0.4% compared to the previous quarter. The unemployment rate decreased to the lowest level in September and October (10% in each month). Inflation rate in October has increased to higher levels (0.5% in October) as a result of expansionary monetary policy by the ECB.

The Japan’s economic growth has saw good signs in the third quarter, but risks still exist. According to the Japanese Cabinet, the annual growth rate of this economy in the third quarter is 2.2%, much higher than the expected level of 0.9% and the growth rate of 0.7% in the second quarter. However, weak domestic demand and appreciating yen will constrain Japanese growth rate.

Thanks to the series of policies and government intervention to improve the domestic economy, Chinese economy has been improved positively in the recent monthes. Property price in many cities in recent months has increased by more than 40% as compared to the same period last years. PMI index increased to 51.2 in November from 50.4 in October, which shows that consumption has been improved significantly, and market demand, including enterprises’ demand, is expected to be improved in the next months. Other emerging markets (India and Russia) are also in good situation, although Brazil has been still in recession.

Global commodity prices increased strongly in the first 11 months by 30%. Particularly, oil price has increased by 65% during this period as OPEC countries reached the agreement on curbing production in September. Besides, coal price has also increased strongly by 87% as the mining activities in US and China was cut while the demand for coal in the emerging Asia has been strong.

International monetary and fiscal situation in the first 11 months faced with many fluctuations driven by the US’ president election and FED’s monetary policy. There are many signs that FED may have the first adjustment of interest rate (of the year) in late 2016. Moreover, the conflicts between newly elected President Donald Trump and FED’s president have pointed to a fluctuating fiscal and monetary outlook for the US and the world.

The globalization and international integration has been challenged by the two largest events in the globe in 2016, namely Brexit and US’ President Election. Brexit has created the big barriers for the globalization and international integration because of its negative impacts on global finance, trade and services. It represents the nationalism and navitism that prevent globalization. Similarly, the nationalism adopted by President Donald Trump may tip the US into the isolating trade path. Trump has announced that he will withdraw US from TPP right in the day he takes his office (January 2017).

II. World economic prospect for 2017

World economic prospect is predicted to be shadowy in the near future. World Bank (June 2016) has revised its 2016 global economic growth forecast down to 2.4 percent from the 2.9 percent pace projected in January. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows. IMF (10/2016) also revised downward global economic growth to 3.1% in 2016 and 3.4% in 2017. With the updated information of world economic developments, NCIF forecast the the world economic growth is 2.98% in 2016 and the increase to 3.3% in 2017.

NCIF’s forecast showed that because the UK and EU’s economies has been affected by Brexit, the world economic growth will be lower in 2016 at 3.0%, then increase to 3.3 in 2017. The US economy is in good shape as with the steady decline in the unemployment rate to less than 5 percent and consumer price inflation has remained subdued, with the growth rate is expected at 1.9% in 2016 and 2.3%in 2017. Japan’s economy is expected to be improved thanks to the expansionary monetary policy led by Prime Minister Shinzo Abe, but the appreciating yen has cutting down on its growth rate. Japan’s economic growth is expected at 0.3% in 2016 and 0.5% in 2017. China economic growth is forecasted to be rather high at 6.5% in 2016, and then decrease to 6.1% in 2017 because of the existing risks.

Oil price is predicted by NCIF to increase from 42.2 USD per barrel in 2016 to 50.4 USD per barrel in 2017 as the world demand increase and OPEC countries decided to cut production. Meanwhile, US Energy Information Administration (October 2016) predict that WTI oil price will be 4.78 USD per barrel in 2016 and 49.99 USD per barrel in 2017, and Brent oil price will be at 43.33 USD per barrel in 2016 and 50.99 USD per barrel in 2017.

World trade is predicted to increase slowly in 2016 because of declining economic growth in emerging economies, particularly China and Brazil. Accordingly, world trade will grow at 2.3% in 2017 and 4.6% in 2017. The anti-globalization ignited by Brexit and US’ President result may drive down this rate to even lower level.

In terms of fiscal and monetary field, after many years of fiscal consolidation, the fiscal policy is prediected to be neutral in developed countries in 2016-2017 due to low economic growth and inflation. Meanwhile, the fiscal policy tends to be more expansionary in the emerging economies to stimulate the economy. On the other hand, the monetary policy tends to be more diversified across countries. FED may increase the rate 2 or 3 times in 2017 as the economy continues to recover. The normalization of monetary plicy is predicted to be done in UK in 2016-2017, while the expansionary monetary policy is predicted to be continued in EU and Japan as their economies have been still sluggish.

Source:NCIF
Author: Đoan Trang
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