There are many reasons to be skeptical about the future of global economic growth - the new POTUS ran a campaign on protectionist strategies such as high import tariffs; key euro-zone elections like France and the Netherlands, UK Brexit uncertainty and details, and Venezuela battling with hyperinflation.
However, there are many things to look forward to. The Fed has started to raise interest rates and is rumored to do so again in March 2017. 235K U.S jobs were added in February vs. the 200K expected by economists, and the unemployment remained unchanged at 4.7%. China has held up better than feared and inflation is starting to pick up around the globe.
Janet Henry, HSBC's Global Chief Economist, recently stated "for the first time in five years, we have increased our forecasts for global growth and inflation for the next two years. We see world GDP growing by 2.5% this year and 2.6% in 2018, while inflation is forecast to his 3% in 2017 before slowing a little in 2018."
Global equity markets have put aside any fear of Donald Trump's campaign promises and investors have focused on other economic policies. One of those policies is the potential for a repatriation tax reform. A repatriation tax occurs when money earned overseas is transferred back to domestic accounts. It is estimated that American companies are holding roughly $2.5 trillion in cash abroad. The administration has also started to sign executive orders reducing financial regulations and is expected to continue to slash several regulations across a variety of industries including energy, oil, and gas.
However, should the administration raise tariffs on imported goods and begin a trade war, there could be severe ripple effects across the global economy and change the world order in unforeseen ways. Furthermore, if the $1 trillion infrastructure stimulus does not stir long-term economic growth by supporting productivity, it will be adding to the already large budget deficit.
Venezuela entered a world of chaos as the country struggles with hyperinflation. It is the seventh country in Latin America to ever experience hyperinflation. Instability is further illustrated by Brazil's economy, which contracted 3.6% in 2016, marking its worst recessionary period ever. This is the second straight year the Brazilian economy contracted, following a contraction of 3.8% in 2015.
China is aiming to expand its economy by around 6.5% in 2017 as it continues to implement a proactive fiscal policy. However, China is bracing for a further slowdown of its economic growth compared to its growth target range of 6.5% to 7% last year. China last year achieved 6.7% GDP, the lowest in over 26 years slowing further down from 6.9% in 2015. Chinese officials argue an important reason for stressing the need to maintain steady growth is to ensure employment and improve people's lives.
India's economy is expected to grow 7.1% in FY17, according to global rating agency Fitch. India is then expected to boost growth to 7.7% in the next two financial years.