Investor optimism, global economic reality may clash in 2017

Fri Dec 16, 2016 2:50am EST
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By Ross Finley

LONDON (Reuters) - Investors sound optimistic about a breakout for the world economy next year, but for all the talk of huge tax cuts from the incoming U.S. presidency of Donald Trump, the economic outlook looks similar to 2016: uneven and unspectacular.

Accelerating inflation and a soaring U.S. dollar as the Federal Reserve raises interest rates are also risks to the economic balance, magnified by that pending stimulus.

Much may hinge on financial markets, which for a brief period around the start of this year looked like their fretting over China might throw the global economy off track. There is plenty more uncertainty about trade with China now than then.

So, many of the several hundred professionals polled by Reuters worldwide say the global trade slowdown during the world economy's lukewarm recovery from financial crisis that started nearly a decade ago could worsen.

Emerging economies will remain vulnerable. Brazil's persistent, crippling recession is way out of line with its soaring stock market, and much of Asia will grow below potential, putting the latest global growth forecast for the year ahead at 3.2 percent, less optimistic than it was this time last year.

For the developed world, meanwhile, it has been productivity gains that have been lacking for so long and policymakers remain at a loss on the reasons why, and how to remedy the problem.

The U.S. jobless rate is already down to 4.6 percent and hiring slowing, so economists say improving growth in output per worker will be crucial for prosperity.

"Mr. Trump and his team have promised growth of 3.5 to 4 percent or more, which we see as 'magical thinking' unless accompanied by accelerated productivity growth," noted Michael Carey, U.S. economist at CA-CIB in New York.   Continued...

Republican presidential nominee Donald Trump arrives for his election night rally at the New York Hilton Midtown in Manhattan, New York, U.S., November 9, 2016.  REUTERS/Andrew Kelly/File