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Macroeconomic picture - April 2017


April 2017





Extension of the growth cycle against a backdrop of major political uncertainty

  • The economic backdrop is still positive. Business climate indicators have been solid since Donald Trump was elected and, although some real data is more mixed, job creations continue at a sustained level, which is enabling wages to increase slightly. For now, core inflation remains under control.
  • Despite high expectations, visibility on the economic policies Donald Trump may implement remains poor. Some of his campaign promises (like repealing Obamacare) have already been thwarted by divisions within the Republican party.
  • It is likely that consensus will at least be reached on tax cuts and deregulation (particularly on finance, the environment and healthcare), which will have a stimulative impact on the economy in 2018. However, with regard to the implementation of major protectionist measures, uncertainty is very high.
  • Major uncertainty surrounding the new administration’s decisions
  • Growth potential stunted for the foreseeable future ("secular stagnation")
  • Erosion of corporate margins


  • In terms of macroeconomic data, Q4 GDP came out at -2.5% yoy, compared to -2.9% in Q3. The two major factors behind this drop in GDP were investment (-5.4% yoy) and consumer spending (-2.9% yoy). Brazil posted yet another major recession in 2016 at -3.4%.
  • Inflation slowed considerably and the BCB began a cycle of monetary policy easing which, in light of the weakness of cyclical indicators.
  • Sharp appreciation of the Brazilian real
  • Easing of fiscal policy






A very good start to the year, despite the political risk

  • Indicators for the beginning of 2017 proved better than anticipated, with some reaching levels not seen for several years. However, the European economic cycle, which is behind that of the United States, is not yet at the point where it could generate inflationary pressure. For now, core inflation remains stable at just below 1% a year.
  • The main risks to the continued recovery are attributable to political uncertainty, the top concerns being the French electoral cycle (presidential and legislative elections between April and June) and the still-precarious situation in Italy, with both countries seeing mounting Euroscepticism. Issues surrounding Brexit could also have an adverse effect in the coming months.
  • Political risk (packed election calendar, rise of anti-establishment parties, Brexit) 
  • Contagion of the emerging world’s economic and/or financial hardships
  • Rise in geopolitical risk



The economic situation is holding up better than expected. However, political uncertainty will be a factor in 2017

  • The UK government invoked Article 50 of the Treaty of Lisbon, making Brexit irrevocable. The UK has two years to come to an agreement on withdrawal terms, which is not much time. The complete lack of visibility over future relations with the EU and the difficult negotiations that are to come will ultimately have an adverse effect on the economy, but most likely not before 2018. For now, growth is holding up.
  • Private investment and consumer spending will feel the effect of rising inflation from the depreciation of the pound and the uncertainty surrounding future prospects. A moderately expansionary fiscal stance will be adopted in 2017-2018 (compared to the two previous years), and the government has some leeway to loosen its policy if needed.
  • Shock of uncertainty related to the Brexit
  • Public and foreign deficits still very high





China: a stabilising impact on the global economy and currencies in 2017 and likely in 2018 as well

  • We believe China’s economic stabilisation will continue throughout 2017 and into 2018.
  • The reasons for China’s economic stabilisation are both bottom-up and top-down. Both private capital expenditure and public spending are experiencing expansion cycles, and are proving to be much bigger than the market had anticipated.
  • The longer-than-expected stabilisation of China’s economy (2016 to 2018) is giving rise to a global upturn, clearly benefitting global cyclical sectors, commodities and the emerging markets
  • Contribution to global economic and currencies stabilisation in 2017 and likely in 2018 as well


  • A longer global cycle is taking shape through the stabilisation of China’s economy from 2016 to 2018



India: a steady growth driver for Asia in 2017 in spite of demonetisation

  • The slowdown in discretionary spending, auto sales and winter crop sowing was less severe than expected post-demonetisation. However, it was more evident in the construction sector.
  • Our baseline scenario points to a prolonged moderation of inflation in 2017. We believe that the demonetisation measures will have only a temporary impact on growth and inflation.
  • The major issues of contention surrounding the GST have been sorted out, and the GST is likely to be implemented in July 2017.
  • India’s growth is positioned to be steady post-demonetisation
  • Prolonged moderation of inflation


The recovery is continuing, with growth above potential.

  • The economy is showing signs of acceleration in terms of domestic demand (investment). Unemployment is at a 20-year low, wages (part time) are rising and profits are improving. The fiscal stimulus plan and the tax cut on corporate earnings are major supporting factors. Externally, the stabilisation in China is having a positive effect.
  • Exposure to Chinese slowdown
  • Negative interest rate policy


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Cross Asset of April 2017 in English

Cross Asset de Avril 2017 en Français

ITHURBIDE Philippe , Global Head of Research
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Macroeconomic picture - April 2017
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