Growth in the global economy looks promising as a 3.4% increase is projected for 2017, but Morgan Stanley warns that political uncertainties in Europe poses cause for concern.
With the unknown effects regarding the implementation of a new United States presidential administration, the initiation of Brexit negotiations as well as significant elections throughout Europe could detrimentally affect global progression while having influence on corporations’ ability to invest.
Monday, the global co-head of economics at Morgan Stanley, Elga Bartsch said:
“With the Italian referendum, the French presidential election and the German general election, we are essentially attempting a political triple jump in Europe.”
She further commented that she believes Matteo Renzi is most likely to be defeated on the constitutional referendum, but does not expect that to cause an early election to be conducted in the first half of the coming year.
The prominent bank is Constance of the risky political implications of current projections, but they anticipates the European sector to increase by 1.4% in 2017. Investors will be keeping a close eye on the results of several detrimental European elections in 2017 while witnessing an elevated level of support for candidates perceived as populous.
Having those populists candidates occupy seats of power within the political scheme in Europe with directly affects global trade exchanges, monetary policies- all of which threaten the stability of the European Union.
On Monday, Bartsch indicated the concerns held by the investment banking industry. She acknowledges that the risks involved are tightly correlated with essential elements of international relations such as globalization, productivity expansion and investment distribution. Additionally, she warns that any form of retaliation that stalls globalization will not only cause international trade to decline, but the negative impacts will trickle down and cause defect within the supply chains that are integrated globally. This will in turn decrease investor confidence, causing corporations to find it more difficult to invest or make investment decisions.
Even more, Barstch warned CNBC that the quantitative easing initiative projections of the European Central Bank is at risk of being derailed should populists candidates gain power.
For the time being, the prediction held by Morgan Stanley is that the European Central Bank will begin restricting its’ positioning on monetary policy in the fall of 2017.
An economic stimulus late in the fiscal year, rapid increases in the rates in the United States, and a reversal on globalization might possibly contribute to the incertitude and doubt experienced around the world, the bank further adds.
When you combine high expectations of expansion with prospects of increased inflation, leading countries such as Germany, Japan a the United States may be forced to relax on their fiscal policies. The central banks in these countries, as well as the United Kingdom, have already stated that they are willing to succumb to the overshooting of inflation. But as Morgan Stanley attests, the central banks declare that none of them “will be sitting on the sidelines forever.”
The UK Economy Surprised Us All But A Slowdown Is Still Projected For 2017
Compared to the UK’s summer Outlook, their 2007 seen economic performance has received more optimistic criticism from Morgan Stanley, even with U.K’s departure from the European Union. One the other side, their rate of expansion is predicted to decrease in half from the 2% they maintained in 2017 21% in the upcoming year.
Diluted investments and decreased unemployment reports, paired with aggressive inflation and feeble Sterling values is what is forcing the slowdown.
The banks released report proclaimed that the exit negotiations will dominate economic performance, adding that the potential for those negotiations to be used as triggers for fiscal stimulus is very possible.