The unprecedented combination of major political events witnessed throughout the past year and so far in 2017 set up a stage where global economic uncertainty sits at its record in 20 years. Such is the sentiment that reigned a couple of weeks ago among senior business people participating in the first APEC Business Advisory Council meeting of the year in Bangkok, Thailand.i
Chile Pacific Foundation executive director Loreto Leyton was among the participants during the February 19-23 meetings as staffer for the Chilean ABAC chapter together with Francisco Garcés, advisor to the board of Banco de Chile and one of the Chilean chapter members.ii
According to a Credit Suisse presentation to the ABAC crowd, an uncertainty gauge regarding economic policy around the globe currently triples its level 20 years ago and doubles its post financial crisis reading when weighing economy size.
“The current uncertainty level is worse than the one seen during the financial crisis”, John Woods, Credit Suisse’s CIO for the Asia Pacific, told an audience of businessmen from all over APEC.
Many of the analyses portrayed during the ABAC Bangkok meeting build from that base and helped to identify 3 keys for APEC economies that may contribute to understand the complexities 2017 will surely carry along with it.
1. APEC growth & Monetary and fiscal policies
Overall, global economic growth in 2017 will be stronger than in the year before, albeit lower than its historical average. APEC region economies will enjoy a more rapid expansion than both industrialized nations and emerging market countries.
Slower growth creates anxiety regarding how effectively monetary and fiscal tools can respond to further deceleration. As budget deficits dominate the advanced economies landscape, this is more evident in the context of monetary polic
2. Global trade & APEC Economies most exposed
Forecasts of slower growth than historical average are in part given by a pull-back in global trade. This decline may be explained by decreasing returns in global supply chain gains or by lower demand for fixed capital as investment rates also decelerate.
Simultaneously, lower trade may be the result of more intensive use of non-tariff barriers in recent years. This trend could be heightened as the new US administration sticks to its trade policy for 2017, thus hurting a number.
3. Uncertainty & Interest rates
Uncertainty is affecting global investors behavior who tend to reallocate their portfolios favoring lower risk asset classes. The effect of this flight to quality on fixed income markets is exacerbated by the expectation that US benchmark interest rates may rise. According to both the federal funds futures market and the Federal Reserve board forecasts, the (benchmark) Fed funds rate should be some 100 basis points higher than its current standing.
i The ABAC meetings scheduled for 2017 are Bangkok, Thailand (19-23 February); Seoul, Korea (26-29 April); Toronto, Canada (24-28 July) and Da Nang, Vietnam (4-7 November).
ii The Chilean ABAC chapter is also joined by Ultramar Agencia Marítima chairman Richard von Appen; Colbún chairman Bernardo Larraín Matte, and Confederación de la Producción y del Comercio (CPC) chair Alberto Salas.