Global Liquidity to Remain, while Growth Declines This Year and Next

Global liquidity should stay abundant the remainder of the year and into 2017, while growth throughout the world should drop to 2.4% this year and stay below 3% in 2017 for the seventh year in a row, propped up mainly by the U.S .and emerging markets.

“Global liquidity should remain abundant due to further monetary easing by major central banks, despite the U.S. Fed hikes,” said Ludovic Subran, chief economist at Euler Hermes. “However, low rates and monetary policies are far from uniform, so liquidity can move rapidly across the regions, generating volatility and turbulences.”

In the U.S., the economy is set to benefit from the staying power of the U.S. consumer, with stronger economic activity providing some relief on suppliers in the industrial sector, Subran predicted.
In China, macro policies targeted to support growth should keep it at 6.5% this year and 6.4% in 2017, though lower demand for foreign goods, negative prices pressures and financial stress could mar the economic vitality, Euler Hermes analysts said.

European growth should stay stable at 1.6% because of an improved policy mix, including the ECB’s Quantitative Easing program and the Juncker plan that doubled to €630 billion. Political uncertainties including Brexit, upcoming elections and other points of tension could weigh on the region, Subran said.

Emerging markets could see growth of 3.8% this year and 4.4% in 2017, as Russia and Brazil are expected to exit recession, but tough credit conditions and the exchange rate crisis are likely to negatively impact countries like Mexico, Turkey and Venezuela, analysts said.

Subran sees three other significant factors impacting the global economy in the near term:
- An expected rise in insolvencies in most emerging countries and in the U.S. Payment terms are also not improving on a global scale, with one in four companies being paid after three months, Subran said.

- Ongoing low commodity prices, though commodity exporters may see some economic stabilization, he said.

- Reduced global trade well below the pre-crisis average of 7%, driven by demand shocks, structural adjustment in demand from China’s rebalancing and energy autonomy in the U.S. and tighter U.S. monetary policy and depreciated currencies, higher import costs and protectionism. “More than 350 protectionist measures have been recorded worldwide in H1 2016, related to both trade in goods and in services,” Subran said. “In addition, the overall electoral calendar, combined with some political and social hotspots will continue to generate turbulences until the end of 2017.”

- Nicholas Stern, editorial associate

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