World economy shrugs off uncertainty…for now
Despite the increase in economic uncertainty, the world economy is strengthening with business surveys signalling an acceleration in growth. Concerns about Brexit and President Trump’s populist policies have been swept aside, prompting talk of a crisis in economic forecasting.
The dismal science seems to be living up to its name with economists out of step with the surge in business confidence. Growth forecasts are likely to be upgraded, but we still have doubts about the sustainability of the upswing now that oil prices and inflation are rising again. President Trump’s rapid shift toward protectionism only threatens to exacerbate inflationary pressure whilst halting the nascent recovery in global trade.
Europe: improving momentum and fundamentals
Europe faces significant headwinds in 2017. Inflation is set to rise which will reduce the purchasing power of households, while political uncertainty, both at home and abroad, could weigh on confidence. Fortunately, cyclical indicators suggest growth was stronger than expected at the end of 2016, with the momentum continuing into January.
Moreover, the economy’s fundamentals are improving, with employment growth rising, and wages starting to recover. Monetary policy should remain ultra-loose despite protests from northern countries, while fiscal policy is generally supportive. So despite the political risk in 2017, a period of optimism is long overdue for Europe amongst investors.
China: a steady course becomes more challenging
Chinese growth has held a steady course, but continuing this policy will become more challenging as the global environment grows more unsettled. New US policies throw up a number of hurdles in particular, but we think the focus on Chinese reserves is somewhat alarmist at this stage

Thanks to our friends at Schroders