The Investment Outlook 2017 at a glance
As 2016 draws towards a close, Union Bancaire Privée sets out its investment outlook for 2017 and highlights a number of specific opportunities and risks facing investors in the coming year:
- Inflation is knocking on the door – “A progressive rise in developed countries”
- Monetary policy: closing the lid on the monetary tool box – “Central banks less aggressive on reflation”
- Preparing for a changing interest rate environment – “When interest rates stop falling…”
- Alternative investments: a key risk diversifier and risk management tool – “An important role for alternatives to provide diversification, limit volatility and improve investor returns”
- Emerging markets: identifying opportunities – “Compelling value remains across many emerging markets.”
- Japan: betting on change – “As a leading developed economy, Japan may seem to be an already mature market with only limited opportunities. However, is becoming clear that initial impressions are not the whole story...”
- What’s next for the US and Europe? – “The US faces a valuation challenge and uncertainty continues to swirl around the eurozone”
Looking ahead to recovery in 2017
2017 could finally be the year that marks the end of a decade dominated by the economic crisis and its aftermath. Another Great Depression was avoided, but not the Great Recession of recent years, which has left scars that today’s “New Mediocre”, as coined by the IMF, cannot erase.
The global economy has stumbled over many a new and unexpected risk in the past years, but this period could end on a more optimistic note. The outlook for next year is looking brighter and we believe growth could rise to 3.5%. This recovery promises to be driven by brisker activity in emerging countries and the growth momentum building up in the US.
Firmer and lasting growth in emerging countries
Growth in emerging countries should speed back up in 2017 to nearly 5% in aggregate, having dropped as low as 4.5% in 2016. The commodity price rally, and the reforms and stimulus by governments should restore the foundations of growth, with a better balance between sectors which should make that growth more sustainable.
China and India will continue to be emerging countries’ growth engines. China’s growth rate may rise back to 7% thanks to the stimulus measures applied in 2016, and also as a result of the reforms to shift its growth model from being centred on exports and manufacturing to running on consumer and infrastructure spending. India’s economy has regained all its vigour and recent reforms there should also push growth up towards 8%.
Watch the full presentation
Norman Villamin, CIO Private Banking
Christel Rendu de Lint, Head of Fixed Income
Asia should keep up its strong momentum, but the outlook is also improving in other regions. Russia and Brazil will benefit from the recovery of the commodity markets and should ease out of recession in 2017, also helped by stabilising domestic demand.
So 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.
Moderate growth in developed countries
Growth in developed countries should generally stay below 2% in 2017 but we expect the US to reach 2.3%. Domestic demand there should receive a boost from the thriving job market and the gradual recovery of capital expenditure, including in the oil sector.
Growth prospects in the eurozone and Japan are more moderate, hovering between 1% and 1.5%. Employment should pick up in the eurozone and support consumer spending, and investment should also rebound. The European project is still fraught with doubts, but austerity policies should ease back and make way for the early signs of recovery. In Japan the fiscal and monetary stimulus announced has yet to materialise and consumer spending and investment are still subdued. In summary therefore, Europe and Japan are waiting for a kick-start from the US and emerging countries.
The UK’s outlook appears to remain uncertain until the negotiations with the EU yield a clearer picture of future economic relations between the two regions post Brexit. The UK economy may slip into a technical recession at the start of the year until the new framework becomes clear.
As regards Switzerland, it should achieve economic growth of 1.4% in 2017, quite close to that of the eurozone and Germany. The Swiss economy has proved highly resilient, maintaining a rather stable and steady growth rate despite its constantly overvalued currency against the euro, but this has been thanks to the flexibility of its manufacturing and services economy.
Learning the lessons of the past
The world economy still faces major challenges in the coming years despite the predicted recovery in 2017. The crisis has destroyed capital, and developed countries are still struggling to rebuild higher potential growth, which has made for low productivity gains compared to the years before 2007. Moreover, monetary authorities could scale back their stimulus policies as inflation picks up, while public debt is still high in developed countries and corporate debt has kept expanding in the past few years, especially in the US.
The views outlined above are explained in full in UBP’s “Investment Outlook 2017” report available upon request.