What do we foresee for 2017? As we end 2016, there are at last some signs that the global economy is starting to reflate, with slightly stronger growth and higher inflation seen in 2017. Globally, fiscal policy has started to turn more stimulative, while a recovery in emerging economies seems to be taking hold after several years of very weak growth. These reflationary signs, while welcome, will raise monetary policy challenges, with policy becoming less supportive for economic activity and financial markets. The impact of the new administration in Washington, DC, adds a new layer of uncertainty, with markets focusing on the degree of fiscal stimulus and whether trade restrictions are imposed.

2016 was another disappointing year for global growth, with a satisfactory performance in the developed world offset by very weak growth in some emerging economies, like Brazil. We expect to see stronger growth in 2017, with EMs stronger (although not strong) and a slightly firmer tone to the developed world, with the notable exception of the UK. This improved performance in the emerging world should push global growth to moderately above the now lower trend, having been a bit below trend for several years.

The global economy is starting to reflate while monetary policy will likely become less supportive for economic activities and financial markets. The changing political landscape adds a new layer of uncertainty.

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