December 30, 2016

'Despite an Improved Global Economic Backdrop, Mounting Uncertainties Will Weigh on Companies in 2017'

Image: EIU
"In 2017, companies can look forward to an improved global economic backdrop but must prepare for uncertainty following Donald Trump's victory in the US presidential elections and the UK's decision to leave the EU," explains the Economist Intelligence Unit in announcing the publication of its whitepaper, Industries in 2017. "This exclusive whitepaper provides a global overview for the year ahead for six industries - Automotive, Consumer goods, Energy, Financial services, Healthcare, and Telecommunications. It brings together analysis and forecasts for each industry, identifying the key strategic business issues that we expect to arise."

Regarding the general overlook for the global economy in 2017, "Threats to global economic growth are mounting. Populist, anti-globalization sentiment has triggered Donald Trump's election in the US and Britain's planned exit from the EU. Yet, despite the raised risks, the world economy is in fact set for a slightly better year in 2017."

Many emerging markets will benefit from "a firmer outlook for commodities." The EIU predicts "that average prices of Brent crude oil will climb by a quarter on 2016, to US$56.5/barrel; non-oil commodity prices will tick up for the first time in years. Beneficiaries will include Russia and Brazil, both recovering from recessions. This will speed economic expansion in the non-OECD world to 4.3% at market exchange rates. The OECD will see a smaller acceleration to 1.8%, while global growth will rise to 2.5%."

As for the U.S. economy, the EIU's forecast "is a sunny one, with GDP rising by 2.3%. Although we expect faster monetary tightening by the Federal Reserve, the central bank, this may be offset by Mr Trump’s promised tax-cuts and infrastructure spending. However, if Mr Trump pushes ahead with protectionist trade policies, he could undermine US and world growth."

While the Federal Reserve will tighten monetary policy, other countries in the advanced world will see their monetary policy "remain overwhelmingly loose." The EIU notes that "governments will also turn to fiscal policy to stimulate demand. In Japan, for example, the prime minister, Shinzo Abe, is throwing yet more stimulus at the economy and the fiscal deficit is set to widen. Meanwhile, debt-laden China will avoid a sharp slowdown in 2017 (not so in 2018), as Asia grows by a healthy 3.9%."

It its overview of the global economy in 2017, the whitepaper correctly explains: "Europe will once again let the side down, thanks partly to Brexit. The consequences of the UK's decision to leave the EU will be long-lasting, profound and clouded in uncertainty. As consumer and business sentiment in the world's fifth-biggest economy sag, recession will ensue in 2017. Europe will manage only 1.4% growth. With important elections in France and Germany to come in 2017, the fear is that the forces ranging against globalization will gain further ground."

Listed below is the central thesis for each of the six industries addressed in whitepaper:
  • Automotive. With the auto industry facing widespread challenges, the focus on research and development has intensified. But will traditional vehicle-makers lose out as mobility becomes more high-tech?
  • Consumer goods/retail. Political events may dampen consumer confidence in 2017 but new technologies will continue to drive global retail sales upwards;
  • Energy. Climate policies will keep chipping away at fossil fuels' role as the mainstay of global energy use, despite Donald Trump's appointment as US president in 2017;
  • Financial services. Finance will enjoy boosts in 2017 from fintech, mobile money, an emerging market rebound and expanding customer ranks. However, the three villains of the post-crisis era—weak growth, low rates and tough regulations—will keep a damper on the sector;
  • Healthcare. Plenty of countries will be trying to expand access to healthcare, but the US may step back from Obamacare; and
  • Telecoms. Telecoms companies will seek new sources of revenue as traditional streams dwindle and pressure from growing mobile broadband usage mounts.
Do you agree with the EIU's forecasts for 2017? What key issues and trends are valuable to your business?

Wishing you a happy, healthy, and prosperous 2017. Thank you for reading.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

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