Markets and Economy in 2017: Analysis
The global economy projections for the year 2017 follow the current trends. Thus, the following year is likely to be a period of stable but slow paced growth with some major challenges, which have always been present in the global markets in recent years. The results of the US presidential election, Brexit, as well as the devaluation of Chinese Yuan will all have an influence on the world economy in 2017.
The Wall Street Journal has published an article on the subject called The Outlook for the Markets and Economy in 2017 with three guest financial advisers explaining the current market situation and how it may unfold in the coming year. Among their conclusions, the following should be underlined.
First, strengthening of the US dollar may harm the domestic economy in 2017, rendering loans in the US currency unprofitable for investors, which may cause a capital outflow from the country. In addition, the Federal Reserve System interest rate increase will accelerate the already progressing inflation from 0.8% to 2%.
In spite of good macroeconomic indicators (the United States GDP increased by 2.9% in the 3rd quarter of 2016 as compared to the same period of 2015), the Fed plans to increase the current level of rates from 0.25% - 0.5% per annum to 0.5 %-1%. Such a measure is expected to support current economic growth and reduce the likelihood of "overheating the economy" (Maxey).
Second, with the results of the US presidential election, Americans now hope for changes in the sphere of economy. While some of the economic decisions of the newly elected President may be debatable, the market has reacted to Donald Trumps victory optimistically, because his office is likely to alleviate some of the burdens hampering economic development. After all, most of the proposed policies address growth-related issues and employment.
Market prospects are a reasonably broad theme to cover in a macroeconomic analysis, so I chose to apply the SWOT analysis. It is the most flexible approach for such topics, as it allows generalizing both internal and external factors of this complex issue. For the purposes of conducting the analysis, the subject is the US economy and the objective is achieving greater growth indices as compared to the year 2016 (Maxey).
The interest rate increase is bound to support the national economy, neglecting the forthcoming period of volatility and reducing market risks. The newly elected president is also advocating for growth-oriented policies. These two regulatory factors are likely to contribute to market stability.
The consequences of the implementation of these policies are yet to be seen. The public attention is now drawn to the proposed 35% tariff on companies that choose to outsource their manufacturing to other countries. The possible effects of this policy are still unknown. Inflation might hurt the economy as well.
During the period of global stagnation, mainly due to the deceleration of Chinas growth, the initiative is back in the hands of developed countries, primarily in the hands of the US. Once again, innovations will play a greater role in the coming year. The US has all the capacity necessary to take advantage of the opportunity.
China has become a major force in the international economy, so every other country in the world is inevitably going to feel the impact of the approaching stagnation. This effect will undoubtedly hinder the growth rates of developing markets, limiting American opportunities to expand into world markets.