Two major risks could adversely impact European markets in the four years to 2017, according to Dun & Bradstreet (D&B) in its just-published ‘Mid-year Global Economic Outlook’.
The business information group cautions that deviation from fiscal rebalancing could result in bond yields rising even higher than the current two-year record – exerting more pressure on an already fragile recovery. D&B also predicts in the report, which gauges global economic trends and predicts gross domestic product (GDP) growth for the major economic regions. that there is still a one in five chance of the eurozone collapsing.
“The risks for the global economy remain substantial, particularly with the transition of US monetary policy, structural imbalances in China, the substantial challenges of the eurozone, and continued political upheaval throughout the Middle East,” said Paul Ballew, D&B’s chief economist.
“However, overall improvement appears to be resilient despite this dynamic environment. Those companies with customer-centric strategies focused on data, insight and predictive analytics are well positioned to take advantage of growth opportunities despite the sluggish macroeconomic environment.”
The report’s other findings include:
- US private sector poised for growth, despite anticipated Federal policy challenges.
While there is more optimism in the US than other parts of the world, it is tempered by uncertainty on several fronts. The direction of US monetary policy is nearly a daily global news item, but timing is speculative; private sector growth, though positive, remains sluggish, and there is ongoing political and economic uncertainty in several vital geographies, both developed and undeveloped.
However, D&B adds that these issues are offset by the ongoing restructuring of domestic businesses, enabling them to invest and continue to innovate and grow. For example D&B’s proprietary Small Business Health Index in the US continues to reflect continuing improvement in their financial position of small businesses and this is leading to moderate gains in hiring.
• Rising political, social risks.
Austerity measures and slowing economic growth have led to large-scale political protests in many countries, notably in Argentina, Brazil and Egypt. Arab Spring violence continues to impact the Middle East, while deep-rooted divisions over Turkey’s political future continue to grow. And Greek austerity efforts have significantly decelerated foreign investment activity in that country.
• The healing process in terms of debt in the advanced economies remains conflicted.
In advanced economies such as the UK, years of cheap credit led to unsustainable levels of household and corporate debt, while public sector debt shot up in light of falling tax revenues and government efforts to hike spending. Many countries have since decreased their household and corporate debt levels, yet some still struggle to keep public sector debt manageable.
• Rebalancing underway in emerging economies.
Emerging economies are slowly beginning to restructure amid sluggish global growth. While significant economic reforms have yet to take hold in many countries, few – notably Mexico – are aggressively pressing for change.
The pound has been, and will continue to be, particularly sensitive to Brexit-related developments.While recent progress in negotiation talks has reduced the chance of a disorderly Brexit, it remains a key risk for GBP, capable of triggering significant volatility.
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