Like famous Las Vegas gamblers, economists are consistently sought after for their forecasts and predictions of the future. While it may be disingenuous to dismiss these views as "your guess is as good as theirs," there have been a staggering amount of incorrect guesses on the part of the "professionals" over the last eight years.
Analyst George Friedman of Geopolitical Futures (GPF) has identified some key contrarian developments that he believes will define the international economic landscape in 2017.
Waking the Russian Bear?
Russia has been in the news lately for allegedly interfering in U.S. elections, but the world's largest country (in terms of land mass) has been conspicuously quiet in terms of its economy over the past few years.
The Russian currency, the ruble, narrowly avoided a total collapse two years ago when the price of crude oil more than halved. The country's central bank was hemorrhaging cash as it sought to stabilize the ruble. Nobody was buying Russian bonds. International sanctions were also choking what remained of the Russian economy.
The IMF seems to think that Russia is now on the road toward recovery—even as it appears its economy will have contracted by more than 1% in 2016. The fact is that Russia's GDP is heavily dependent upon oil exports. While the removal of sanctions should boost exports to Europe, and Russia now supplies China with more oil than Saudi Arabia does for the first time ever, there's more reason to be skeptical about Russia's economy than optimistic.
Even as the rest of Europe is mired in slow growth and a lingering banking crisis, Germany is seen by many as the economic juggernaut that keeps the eurozone afloat. Interestingly, however, it is not Germany that is compensating for Europe's economic woes: in some sense, it is the one that directly benefits from them.
A weaker euro has been a boon for German exports, which account for nearly half of the country's annual GDP. The other member nations of the euro bloc essentially subsidize German imports while paying for its exports. Germany reaps the most benefits from the common currency for this reason. However, political momentum against longtime Chancellor Angela Merkel and her handling of the refugee crisis in Syria could further erode support for the establishment and its pro-globalization, pan-European vision.
Though it may seem that Germany's economic prospects are the best in Europe, don't be shocked if the world's fourth-largest economy suffers a slump in exports and GDP growth this year. Even one of Germany's largest banks, Bundesbank, acknowledges that the landscape is now less favorable for the country's exporters.
Most experts recognize that China is the engine that drives the global economy, even if the U.S. economy remains marginally larger. Particularly since the onset of the financial crisis in 2008, China has dominated global trade with its enormous productive capacity and focus on manufacturing.
However, a quarter-century of 7%+ GDP growth may be a thing of the past rather than the "new normal" for China. Already there are signs that China's economy is slowing down as it transitions into a more advanced model that targets consumption rather than overseas sales. Profits for Chinese multinational firms have been slipping, and many insiders are convinced that the communist state publishes overly optimistic data in order to hold onto public support.
The rosy numbers paper over potential problems in China: excessive debt, a volatile currency, and a pernicious asset bubble hiding in the domestic housing market. It will likely be difficult for the People's Republic to deal with these problems effectively while keeping the public supportive and at ease; in most cases, the current regime has tended to choose the latter at the expense of the former. How this plays out could go a long way toward determining how bumpy the ride is for the Chinese economy in 2017.
You can download a more complete explanation of these forecasts and their supporting data from Geopolitical Futures (GPF).
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.