Complex Made Simple

Recession or recovery in 2017?

* After turbulent 2016, analysts and experts try to forecast for 2017

* “Political uncertainty, low growth and productivity” may cause a recession

* OPEC has struck historic deal to curb oil production and boost prices, but they won’t return to the highs they saw few years back

* Swiss bank UPB forecasts growth in emerging countries to speed up in 2017


In 2016, the world’s economies were hit by several unexpected events: Brexit, Donald Trump as US president, and, most recently, the Italian referendum, are only a few of them.

As the year draws to a close, the big question on everyone’s minds is: will 2017 be a year when everything stabilises? Or are we set for more turbulence?

Market experts and analysts, some more optimistic than others, are rushing to try and make sense of 2016 and lay out their forecasts for 2017.


(Italy referendum: Step 1 to another Brexit?)


Recession ahead?

In October, Steen Jakobsen, chief economist and chief investment officer at online trading investment bank Saxo Bank, warned that global economies will face a recession in 2017.

“The higher cost of capital, more political uncertainty, low growth and productivity – this is all the making of a potential recession for the world in 2017,” he said during a media briefing in Dubai.

Focusing on the banking industry, the chief economist said major central banks, led by the Bank of Japan, are changing their monetary policy, operating less quantitative easing (QE) and pumping global economies through what he called “back-door helicopter money”.

But the world’s attention has shifted since to other major events and sectors that made headlines, such as oil. Jakobsen’s views were not strongly echoed by hopeful others.


(More on Jakobsen’s forecast here)


Oil to make shy comeback

The world of energy heaved a sigh of relief last month, when OPEC members reached an agreement to cut oil output to ease a glut that has caused oil prices to plummet to record lows for more than two years.

Several non-OPEC members have also announced they are coming on board with the cut, to make the oil market healthy again. However, despite the historic deal, oil prices are not expected to return to the highs enjoyed a few years ago.

In its 2017 Commodity Outlook Report, Bank of America Merril Lynch forecasts that oil prices would range between $50 to $70 a barrel in 2017, almost half of the price in 2013.

“While we retain a positive outlook on commodity beta over the next 6 months, we believe some of our commodity alpha strategies are worth considering,” the outlook report, produced by Francisco Blanch and their Global Commodity Research team, noted.


(2016 OPEC deal: How we got here)


Optimistic outlook

Union Bancaire Privée (UPB), one of Switzerland’s leading private banks, highlighted a set of specific opportunities and risks facing investors in 2017.

Overall, UPB is optimistic, speculating that “2017 could finally be the year that marks the end of a decade dominated by the economic crisis and its aftermath,” according to the outlook, which forecasts a growth rise of approximately 3.5 per cent.

Emerging markets are expected to drive the growth rise, witnessing brisker activity, not to overlook the growth momentum building in the United States as we enter 2017.

UPB forecasts growth in emerging countries to speed up in 2017, reaching five per cent, after having dropped to as low as 4.5 per cent in 2016.

Rallying commodity prices, coupled with governments’ reform activities, are two main building blocks expected to support the foundation of growth. This is especially true for China and India, which are regarded as the “emerging countries’ growth engines.”

“For the first time since the financial crisis, economic activity in emerging and developed countries should be more synchronised. The agreements on oil production and the gradual increase in trading within each region should help world trade rebound, after several years of near stagnation,” UPB’s outlook stated.

Despite the predicted recovery, it is important to note that the global economy continues to face major challenges, as the global financial crisis of 2008 destroyed capital and developed countries still struggle to build high potential growth.