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2 Jan, 2017 14:36

Investor optimism, global economic reality may clash in 2017

Investor optimism, global economic reality may clash in 2017

The economic outlook for this year looks similar to 2016 - uneven and unspectacular, according to economists worldwide polled by Reuters in December. The result is despite investor optimism about a breakout for the world economy.

Many of the experts said the global trade slowdown, seen during the slight recovery from the financial crisis that started nearly a decade ago, could worsen.

Emerging economies are expected to remain vulnerable. Much of Asia will grow below potential, putting the latest global growth forecast for 2017 at 3.2 percent. The projection is less optimistic than for the previous year.

Economists called accelerating inflation and a soaring US dollar among the risks to the economic balance.

Dollar strength, weakening other currencies, will influence how emerging markets manage relatively higher inflation, as well as falling business confidence, they said.

As for the developed world, productivity gains have been lacking for a long time. Policymakers will continue uncovering the reasons and ways to remedy the problem.

READ MORE: World Economy: Cheer up, the worst is yet to come

Improving output per worker will be crucial for the prosperity of the US economy.

"Mr. Trump and his team have promised growth of 3.5 to 4 percent or more, which we see as 'magical thinking' unless accompanied by accelerated productivity growth," said Michael Carey, US economist at CA-CIB.

According to the poll, the recent acceleration in eurozone growth is a bright spot as the European Central Bank continues buying tens of billions of euro worth of bonds each month. That keeps the euro under pressure and makes exports relatively cheaper, experts said.

They, however, see the elections in Germany, France, and the Netherlands as a potential threat which could further challenge the EU’s status quo. That might add to the economic effects from the expected UK exit from the European Union.

The potency of global monetary policy is seen fading due to central banks’ tightening campaigns.