AFP 2016 report: India global growth engine, as US stalls

With polling day now only two weeks away, the business landscape and economic prospects of the US under the presidency of Hillary Clinton or Donald Trump has been much in focus at the Association for Financial Professionals’ (AFP) conference in Orlando, Florida this week, but India is expected to be the star performer in future years.

While GTNews overheard one female delegate grumble to her companion that she hadn’t yet heard a conference speaker “who wasn’t anti-Trump” assessments about the US economy and politics have generally been well considered and unpartisan – even if there is a general view that neither candidate in the US election is exactly inspiring.

One morning session at the Orange County Convention Center, entitled ‘An Outlook on the Global Economy, Markets and Geopolitics‘ was presented by Dan Burns, economics and financial markets editor for the Americas at news agency Reuters. He presented the group’s outlook for the world’s major economies, which are based on extensive polling of banks and other major financial institutions rather than any personal viewpoint.

Regardless of the outcome of the US presidential election on November 8, the most likely outlook for global economic growth is that the less developed markets will be the star performers in the near term. India is expected to register annual gross domestic product (GDP) growth of 8% in the near term, surpassing China, whose growth rate could ease down a notch or two further to just over 6%.

There is a wide spread of different expectations around the growth prospects for more developed markets – particularly the UK whose new prime minister, Theresa May, will embark on the delicate negotiations involved in extricating the UK from the European Union (EU) in 2017, following the pro-Brexit vote four months ago.

Reuters’ outlook for the world’s largest economy is that US growth next year isn’t likely to be, at best, much above 2%, with the likelihood that the first quarter will again be weak followed by a stronger performance later in the year. Former stars of the so-called BRIC emerging economies, Brazil and Russia, are likely to emerge from recession next year, while Turkey and South Africa could also put in an improved performance.

The post-Obama era

For the US, Burns said that Reuters has pencilled in only modest economic growth of 1.5% in 2016, then edging up to 2.1% in each of the next two years. The current US unemployment rate of 4.9% should also show modest improvement, edging lower to 4.7%.

The US Federal Reserve is viewed as likely to make a further 0.25% hike to 0.75% in its benchmark rate this December. A further two 0.25% increases is expected to take it to 1.25% during 2017. A feature of the US economy during its long, slow recovery from the depth of the recession in 2008 has been the heavy reliance on consumer spending for growth. The Federal Reserve chair, Janet Yelland, has made clear her dismay at the lack of capital expenditure (capex) made by businesses.

As Burns put it during his AFP presentation: “How long can the world continue to rely on the US to deliver, when so many parts of its economy aren’t firing on all cylinders?” The dilemma for its policy-makers is that even with interest rates maintained at near record-low rates, growth is failing to ignite.

Yelland’s recent despondency has been further deepened by US productivity levels, which have declined in three consecutive quarters but provoked little insight from its policymakers into how the problem might be resolved.

On inflation, the Federal Reserve suggests that the rate is anchored firmly below 2%, helped by depressed oil prices that are likely to prove transitory. In the meantime, inflation hasn’t been tamed across the board: Burns’ healthcare insurance provider has informed him of a 12% premium hike, while wage and benefit rises for staff mean that the cost of eating out is rising at a rate upwards of 2%, while the cost of staple grocery items has declined for several successive quarters.

Losers under Trump

While last week’s ill-tempered third and final US presidential debate between the main candidates points to a victory for Hillary Clinton next month, Reuters has nonetheless analysed the repercussions of a Trump victory. They include a sharp jolt to the world equity markets, although Burns believes this could prove as short-lived as the markets’ post-Brexit sell-off.

It’s widely assumed that his recent spat with Congressional heads would swiftly be patched up and the tax plan proposed by Paul Ryan, speaker of the House of Representatives and chief architect of the Republicans’ tax policy, would swiftly be adopted and introduced by Trump. However, the latter’s declared intention to allocate US$500bn towards repairing the US’s infrastructure could potentially run into opposition.

A more worrying prospect is that a Clinton victory could swiftly be followed by “a chronic state of war between the White House and Congress” that torpedoes the Democrats’ plans for tax reform and infrastructure spending completely.

The rancour of the debates also means that the two candidates have had little to say on the disruptive force poised by new technology to US workforces and their living standards. According to Burns, it’s estimated that only one in four US workers are equipped for a future in which their job remains immune from the threat of technology disruption. To give just one example, the advent of self-driven vehicles would render thousands redundant, from truckers to taxi drivers.

“Barring a real national investment in training and education, technology and FinTech threatens a long-term decline in US living standards,” Burns concluded.

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