What lies ahead for the global economy in 2017?
The session begins on a positive note - the global economy is on the up. But the dominant concern now, says moderator Martin Wolf, Associate Editor and Chief Economics Commentator at the Financial Times, is clearly political.
“It’s appropriate that we are holding this panel on the day of the US President’s inauguration,” he states.
Christine Lagarde, Managing Director of the IMF says that growth is certainly looking better than in previous years.
She adds that even growth for the US has been revised upwards because of the possible positive consequences of tax reforms. That said, it will be interesting to see how Trump's trade reform and fiscal reform will work together.
"The combination of US fiscal and trade measures will probably not, overall, be a net positive," she warns.
But she also cautions that the IMF has downgraded some of the emerging and developing economies partly for idiosyncratic reasons, such as India's recent actions on its currency, but also because of the negative consequences of Trump’s policies on countries like Mexico.
Wolfgang Schäuble, of Germany's Federal Ministry of Finance, says that so far, Germany’s economy had been unaffected by Brexit.
Philip Hammond, the UK's Chancellor says much the same about the UK economy:
That said, the depreciation of sterling will feed into inflation, which will affect consumer confidence, hence the lower forecast for 2017, he explains.
He was also keen to point out that:
And firmly places the blame at former Prime Minister Tony Blair’s feet: “He didn’t ensure that we had a smooth transition into freedom of movement,” he says.
That said, good relations with the EU were critical for the UK.
But Hammond cautions that: “If we are denied access to EU market we will have reinvent ourselves, and we will, we've done it before."
“We’ve seen big companies proceed with big investments in the UK and in many parts of the world," continues Hammond. "The UK is seen as a buying opportunity because of the depreciation of our currency and the fact that, fundamentally, we are still a large market.”
The Governor of the Bank of Japan, Haruhiko Kuroda, is also bullish on the global economy.
How seriously should we take Trump’s rhetoric?
“After the election we saw a rise in optimism,” says Laurence D. Fink, Chairman and Chief Executive Officer of BlackRock Inc. “People felt that they had a voice and their voice was heard and it changed policy. They believe that the past policies were wrong for them and they are encouraged; they are spending more money, they are more optimistic.”
But one of the key long-term concerns for the advanced economies, which is not talked about as much, is ageing population, he states.
“We are not talking about the corrosive impact of the last few years of low rates and how it has harmed the average worker in a world where we have moved away from defined contributions," he explains. "It’s now up to the individual to save for their future but in most cases they have done a poor job." The economic impact of this will be far reaching he says.
On the more short-term, the rising dollar is an issue, says Fink.
“There is also the financial risk to emerging markets of the rising dollar,” he says, echoing Christine Lagarde’s comments, “And the fact that protectionism might further reinforce it."
“Our behaviour towards our trading partners can have a further impact on the dollar,” he adds.
“There is going to be a great deal of tension between the President and the Federal Reserve,” he predicts.
With regard to the US, Wolfgang Schäuble thinks that the likely trade scenario may not be as bad as everyone thinks, "I'm quite optimistic that the US will not leave the defence of free trade only to Chinese leadership."
Will the UK become “Singapore-on-Thames”?
Back to the subject of Brexit, Wolfgang is asked if he thought the UK would become "Singapore-on-Thames".
“I can't imagine that the UK, this great nation, would compare itself with Singapore,” he retorts.
“I think we will we have to manage this decision by the British people in the best way to minimise any damage for the UK as well as for Europe,” says Schäuble.
“We know all the problems of the structure of the EU, but the major problem is the gap of competitiveness within the different states," he argues. "But that cannot be solved by weakening the stronger ones, that must be solved by strengthening the weaker economies."
“My first reaction to Brexit was that I cried,” he admits.
“My second reaction was that it’s a wake up call for Europe. We have growing euro-scepticism and I don’t agree with Philip that anti-globalisation feeling didn’t play a role in Brexit."
Will Trump dismantle regulatory financial landscape?
“I don’t think anyone is asking for that," says Fink.
“Regulation makes the world a safer and more interconnected place, it inhibits new participants, it is not as bad as people think. Regulation and compliance is now the biggest spend for banks, it’s been a great growth area and whilst I do believe the tone needs to be changed, fundamentally regulation should remain.”
Outlook for Africa at Lat Am
The outlook for Africa and Latin America was diverse with some economies on the up, says Lagarde . The danger was for those with US dollar-denominated loans.
But Hammond interjects that higher growth projections for Africa were nowhere near enough to absorb the population growth. "There will be higher GDP growth but lower GDP per capita, and unless we solve that problem the pressure from sub-Saharan Africa will continue," he warns.
Future risk
The biggest risk, according to Laurence Fink was that presented by new technology.
"Within a decade or two, technology will be added to the challenge of ageing and the pressures on trade and globalisation," he warns.
Philip Hammond agrees:
But Christine Lagarde has the last word:
"Growth will not be sustainable if it is not inclusive. Inclusiveness means looking after, helping, and supporting those countries that are in the development process. Otherwise we will be dealing with massive inequality which will challenge growth."