General economic conditions
Improved growth opportunities alongside greater risks for the global economy
Economic researchers expect the global economy in 2017 to walk a tightrope between an improved economic environment and crisis-driven uncertainty. It will thus remain precarious for the foreseeable future. Monetary policies in the industrialised nations are likely to drift further apart. Interest rates are expected to rise around the world, so currency movements and turbulence on the financial markets cannot be ruled out. Nonetheless, the recent acceleration of production growth in the industrialised nations is set to continue and provide stimulus for the emerging economies. In contrast, the political imponderables are growing ever larger. Nationalism and protectionism are gaining popularity around the world, the direction of the new US government is still unclear and the European Union is facing a major challenge to preserve its stability. In addition, the crisis in the Middle East is still unresolved. Provided these risk factors remain limited, the IMF anticipates a global economic recovery to growth of 3.4 percent (IfW: 3.5 percent).
The USA is set to continue on its now established trajectory of economic growth. The new government has announced an expansionary economic policy that could provide additional growth stimulus in the short term. According to the IMF, the US economy is expected to grow by 2.3 percent in 2017, i.e. more dynamically than has recently been the case. Other regions are also likely to benefit from this. The IMF therefore anticipates a revival in growth to 1.9 percent in 2017 in the industrialised nations as a whole. Despite the structural problems, prospects for the emerging and developing economies are expected to brighten, supported by rising commodity prices. For 2017, the IMF expects economic growth to accelerate to 4.5 percent here.
The expected economic development in the Europe, Asia Pacific and EMEA regions in 2017 is described below. The country-specific definition of the regions is based on the segment reporting of the Wilo Group.
Steady, moderate growth in Europe
Europe is facing major political challenges in 2017, which could also have a substantial impact on economic development. For example, the negotiations for the UK’s exit from the European Union are about to begin. New governments are to be elected in important countries such as France, Germany and the Netherlands, which could strengthen EU-sceptic tendencies. In addition, the structural problems in Southern Europe have not yet been overcome. Italy especially is under particular pressure to act because of its serious banking problems. In contrast, Europe’s economy is being supported by higher government spending and the European Central Bank’s expansionary course. Private consumption is likely to benefit from the ongoing improvement on the labour market. Investments are expected to pick up again, partly as a result of a need to catch up. In the euro area, economic researchers again expect moderate growth in 2017. The IMF anticipates growth of 1.6 percent (IfW: 1.7 percent). Strong growth is in the offing for Ireland, Spain, the Netherlands and Eastern Europe. France and Italy are expected to continue growing weakly at 1.2 percent and 0.8 percent respectively. Growth in the UK is likely to slow down.
Economic researchers estimate that the German economy will remain on a path of expansion in 2017. The IMF forecasts growth of 1.5 percent. The IfW anticipates 1.7 percent, or 2.0 percent adjusted for calendar effects. The upturn is expected to be driven by the domestic economy. Private consumption is likely to benefit from the good labour market and high government transfers. However, the momentum of private consumption is expected to be slowed by higher energy and fuel costs. The high demand for housing and advantageous financing conditions are set to boost investments in construction. It is also anticipated that equipment investments will gradually see stronger growth. This is indicated by the persistently low interest rates, export growth and already high capacity utilisation.
Asia remains the engine of the global economy despite structural growth slowdown
In China, the rate of expansion is likely to be further reduced by the restructuring of the economy, but it will remain above average in global terms. The government is endeavouring to eliminate inefficiencies such as overcapacity in basic industries and real estate bubbles in megacities with incremental reforms and other interventions. At the same time, it is regularly stimulating the overall economy, including with infrastructure investments. The poor capital allocation and high corporate and regional authority debt could increasingly have a negative structural effect. The IMF expects China’s growth to slow further to 6.5 percent in 2017. Although Asia’s economy will tend to expand more slowly with growth of 6.3 percent according to the IfW forecast, the region is nevertheless likely to remain, alongside the USA, the main driver of the global economy in the future.
Investment activity in India has faltered recently. At the end of 2016, a strict cash reform was imposed unexpectedly in order to combat the black market and corruption. This has cast a further shadow over the country’s prospects for the time being, as private consumption there is largely transacted in cash. International banks therefore expect temporary losses of up to one percentage point compared to the originally expected trajectory of expansion and growth rates of 7.6 percent to 7.9 percent. The IMF forecasts economic growth of 7.2 percent in 2017.
The Korean economy is currently lacking momentum because of comparatively weak domestic demand. Restructuring in the corporate sector, especially in shipbuilding, is depressing the labour market. In connection with higher inflation, the development of private consumption is expected to be subdued. At the turn of the year, the Korean government lowered its 2017 growth forecast to 2.5 percent.
The countries of Southeast Asia are set to benefit from the consolidated upturn in the industrialised nations. The IMF expects the five major ASEAN nations to see a slight increase in growth to 4.9 percent in 2017.
Varied environment with political risks in the EMEA region
The Russian economy is showing initial tendencies towards recovery. The subsidy cut adopted by the OPEC member states is likely to prop up the Russian economy and relieve pressure on the national budget. In addition, the recent high rate of inflation is falling. On the other hand, the economic sanctions against Russia have been extended. The corporate debt, predominantly financed in US dollar, and foreign policy remain risk factors. In a baseline scenario for 2017, the Russian central bank anticipates economic growth of between 0.5 percent and 1.0 percent with a sharp rise in oil prices to as much as 1.7 percent. Private consumption and fixed capital investment are initially expected to grow again. The IMF estimates the growth in Russia in 2017 at 1.1 percent.
Massive uncertainty is currently casting a shadow over the Turkish economy. As a reaction to the failed coup attempt and the continuing terror activity, the government is intervening extensively in society and the economy. The central bank had to increase interest rates at the end of 2016 in order to stabilise the currency. As a countermeasure, the government is planning to support the economy with spending. The IfW expects growth to slow to 1.2 percent in 2017.
Development in Africa and the Middle East remains difficult. Although the long-term prospects are very good in some cases, war, terror, structural deficits and legal and political uncertainties are substantial risk factors in the short term. Overall, the region is very varied and requires a selective view. The Middle East and parts of North Africa are dominated be geopolitical crises. Nonetheless, the oil-exporting countries are likely to benefit from a recovery in crude oil prices. Other countries such as Morocco or Tunisia are closely linked to the economy in Europe and comparatively stable. The IMF expects an economic downturn to 3.1 percent in the Middle East and North Africa in 2017. South of the Sahara, the economy is set to revive in many places, with higher growth in Nigeria and South Africa.