Introduction Global Economic Outlook, Q1 2017

In the Q1 edition of the Global Economic Outlook , our economists across the globe examine the unfolding environment in the United States, Eurozone, China, Japan, India, Mexico, Turkey, and South Africa, as well as the impact on the global shipping industry.

As 2017 begins, the global economic environment is characterized by new political realities. In the United States, there is a new president with ideas and goals different from those of his predecessor. The US election has led to higher bond yields and a higher-valued US dollar based on expectations of faster growth and more inflation. In Europe, growth and inflation have begun to accelerate, yet unemployment remains stubbornly high in much of the continent. Meanwhile, important elections are on the horizon for both Germany and France, setting the stage for the policy environment in the coming year. In Asia, growth is stabilizing, but risks are piling up in the form of higher debts and rising trade tensions. In this edition of Deloitte’s Global Economic Outlook, our economists across the globe examine the unfolding environment and offer their thoughts on how things might evolve.

First, Patricia Buckley discusses the US economy in light of the election. She notes that the economy is in “fairly good shape,” but that the incoming administration has fiscal plans designed to boost growth and trade as well as immigration plans meant to shield the US economy from the vicissitudes of the global economy. She discusses the details of the policy proposals but acknowledges a considerable degree of uncertainty around the likely outcome, given that the new president must find common ground with the US Congress.

In our second article, Alexander Börsch looks back at 2016 and how it was not a bad year for the Eurozone from an economic perspective. He discusses how the current environment sets the stage for continued moderate growth with rising inflation. On the other hand, he notes the political earthquakes that struck Europe in the past year, such as Brexit and the Italian referendum, as well as the various downside risks to Europe’s economy.

In our third article, I look at the Chinese economy. I discuss how two issues in particular are likely to determine the path of the Chinese economy. First, trade is top of mind, with exports declining due to a high-valued currency, rising wages, and weak external demand. Moreover, the threat of protectionist action by the United States makes the trade outlook uncertain. Second, efforts to cool down an overheated property market are bearing fruit but threaten to undermine growth. Finally, I look at China’s efforts to stabilize its currency.

Japan is the topic of our fourth article. I examine how stronger exports have led to an acceleration in economic growth. Moreover, the weakness of the yen bodes well for continued export growth. Given the rising strength of the economy, it is expected that monetary policy will remain unchanged. On the other hand, I discuss how wages have failed to respond to the tightening labor market, boding poorly for consumer spending. Finally, I look at how the failure of the Trans-Pacific Partnership might hurt the government’s efforts to engage in structural reform.

In her article on India, Rumki Majumdar offers a detailed examination of the government’s recent and controversial demonetization. She notes the potentially disruptive effect of this policy. However, she also discusses the possible longer-term benefits of this currency reform. Finally, Rumki discusses various external factors that might influence the Indian economy, including the US election, the slowdown in China, and the rebound in oil prices.

Mexico is the subject of our next article by Jesus Leal Trujillo and Daniel Bachman. The country has attracted quite a bit of attention given President Donald Trump’s talk about renegotiating NAFTA. Jesus and Danny examine the history of Mexico’s shift toward freer trade in the past two decades and the economic impact. They also examine how, in the process, Mexico’s manufacturing industry became a key component of the North American supply chain. Thus a significant change to NAFTA could be quite disruptive. The possibility of such a change has already caused a sharp drop in the value of the peso, potentially creating much higher inflation. Jesus and Danny discuss the policy options for Mexico in light of a possible external disruption.

In our next article, Akrur Barua examines Turkey, an economy with many positive attributes. However, currently Turkey faces some significant challenges, including terrorism, an influx of refugees, slow growth in export markets, and political uncertainty. The currency has fallen, restricting policy options. The result has been a decline in economic activity. Given that government finances are in relatively benign shape, a planned fiscal stimulus makes sense. Yet Akrur suggests that the economy also requires structural reforms.

Lester Gunnion examines the South African economy in our next article. He points to relatively slow growth and the necessity of tight monetary and fiscal policies, which don’t much help persistently high unemployment. Lester notes that the country suffers from a shortage of skilled workers, a troubled education system, poor infrastructure, and a very high level of income inequality. He discusses how boosting investment could be the key to bringing the country out of its doldrums.

In our final article, Akrur Barua and Anshu Mittal take a look at the global shipping industry. They discuss the upheavals facing the industry as a result of excess capacity and a slowdown in global trade. They look at commodity prices, shipping costs, and capital expenditure. They conclude with some thoughts on the likely direction and structure of the industry.