World Economic Growth Forecast to Increase 2.8 Percent in 2017

World economic growth is forecast to increase 2.8% in 2017, compared to 2.5% in 2016, according to an economic update from Atradius.

Global growth is buoyed by a strong US economy, as well as improving outlooks for many emerging market economies. That said, substantial downside risks remain. After the March increase in the US policy rate, markets have priced in two more hikes this year, with the earliest one expected in June.

In in its economic update, Atradius noted that US monetary policy normalization could hurt some emerging markets with large external vulnerabilities.

The likelihood has increased that the Trump administration may not be able to achieve many of its aims, including pro-growth measures such as infrastructure spending. This had led investors to pay more attention to the downside risks of the Trump presidency, notably those stemming from protectionism and aggressive foreign policy actions.

Broad trend toward populism

There is a broad trend toward populism in western democracies. Political uncertainty has risen following the Brexit decision, the election of Donald Trump and the outcome of the Italian constitutional referendum. The next big test will be the presidential election in France.

The net effect of further increasing uncertainty would be negative for global GDP growth, as business investment would be postponed and international trade could slow down further.

Protectionism and anti-trade policies are a major concern amidst this political uncertainty, threatening the outlook for international trade in 2017. In 2016, the volume of global trade slowed to only 1.3%, according to the Netherlands Bureau for Economic Policy Analysis, the slowest pace since the global financial crisis.

This slowdown was primarily due to lower demand for goods, but finally there have been signs of a rebound since Q4 of 2016. With stronger global GDP growth prospects, Atradius forecasts world trade to pick up to 3% in 2017.

Backed by the OPEC supply deal, oil prices have stabilized in the USD 50-60 range per barrel of Brent. However, oil prices are too low to enable a significant revival. The US Energy Information Administration forecasts oil prices to level off in 2017, averaging USD 55 per barrel.