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A good start but many uncertainties 1/11/2017

It looks as if uncertainty will become one of the buzzwords of 2017: start of the negotiations about Brexit, a new economic policy mix in the US, elections in Europe. However, the cyclical environment to confront these uncertainties looks pretty robust, as witnessed by recent data which have on the whole surprised to the upside.

TRANSCRIPT // A good start but many uncertainties : January 2017

Let us start 2017 by reviewing the global cyclical environment with BNP Paribas Chief Economist, William De Vijlder. Welcome.

- Hello.

- William, could you describe the global economic situation in the first part of the year, in the light of the few statistics available for year-end 2016?

- The economic situation is indeed pretty positive, as we can see in many countries, and statistics have clearly surpassed economists’ expectations.

- How do you explain this improvement?

- Numerous factors are at play. First, the monetary environment is still accommodative, pretty much all over the globe. The second factor is the upturn in oil prices, which rules out the cataclysmic scenarios we feared in early 2016. The third factor is major stimulus programmes whereby the successful effort in China has had international spillover effects.  

- And in the UK, Brexit did not trigger an excessive slowdown in growth.

- Indeed that gave confidence a real boost, one that reached well beyond the British economy. Of course another key factor is Donald Trump’s election and the prospects of a fiscal stimulus in 2017. We must not forget that his election had a very favourable impact on financial markets, which in turn lifted household and business confidence.

- The markets are turned towards the future. From an economic perspective, what do you see as the big trend in 2017?

- Looking at business sentiment, confidence and leading indicators, everything points to a favourable environment  in the next few months. In the developed countries as well as in the emerging economies. Of course, it is important to pay attention to the differences and nuances between countries. In the UK, for example, we expect to see the impact of uncertainty and the other consequences of Brexit to begin emerging in the first quarter, including for the eurozone. We pay particular attention to the prospect of higher inflation, which has already picked up and will strain the growth of real disposable household income.

- And in the United States?

- For the Americans, there are high hopes that a fiscal stimulus will be launched that will boost growth.

- William, there are nonetheless some risks. We often speak about uncertainty, which is one of your watchwords for the year 2017. Uncertainty shrouds the implementation of economic policies as well as the electoral calendar. How do you see this?

- Uncertainty is indeed the key word for the first part of the year. By definition, uncertainty means not knowing which of several different scenarios will come into play. Uncertainty is a relevant factor when there are major differences between scenarios. In the real sphere, that is growth, investment, Brexit and the uncertainty accompanying it are very important factors. In addition, the economic policy mix in the US is changing, with a somewhat more restrictive monetary policy and a fiscal stimulus.

- It will take some time for these factors to carry over to the real sphere. The financial markets, in contrast, are much more reactive.

- Indeed, the financial markets operate with a much shorter horizon, which means they are more reactive. They will be tempted to drive certain themes to the extreme. This explains why the financial markets are also so sensitive when it comes to the electoral calendar.

- What is your conclusion for the year 2017?

- My conclusion is that there is a lot of uncertainty, but that we have good foundations to confront it.

- Thank you, William. We will be talking with you throughout 2017 for updates on all these events.

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