As 2016 draws to a close, everyone’s mind is focusing on whether it will be Recession or recovery in 2017? Will 2017 be a year when everything stabilises? Or are we set for more turbulence?
Generally all of us, market experts and analysts first are sitting on these questions trying and make sense of 2016 and lay out their forecasts for 2017.
In our article Noisy Business related Declarations of May 28, 2016, we introduced Saxo Bank which reiterated last October, through its Steen Jakobsen, chief economist and chief investment officer at the bank’s online trading investment division, warning this time that global economies will face a recession in 2017. In a recent media briefing in Dubai, he held that major central banks, led by the Bank of Japan, are changing their monetary policy, operating less quantitative easing (QE) and pumping global economies through what he called “back-door helicopter money” after announcing that “The higher cost of capital, more political uncertainty, low growth and productivity – this is all the making of a potential recession for the world in 2017.”
In the meantime, the world of energy last month, OPEC members together with NOPEC countries reached an agreement to cut production so as to make the oil market healthy again.
Meanwhile, the same Saxo Bank’s chief economist predicts that a stronger Dollar couyld well lead all towards the dreaded recession. Excerpts of an article published on December 11, 2016 recalling the same, is reproduced below.
Saxo Bank: A stronger US Dollar and Fed policy may lead the world into recession in 2017
Saxo Bank chief economist says GCC nations’ focus in 2017 should be on balancing and diversifying their economies
The shifting focus of major central banks from quantitative easing (QE) programmes to fiscal policy through potential back-door helicopter money will have knock-on effects that could lead the world into recession next year, according to Steen Jakobsen, Chief Economist and CIO of Saxo Bank, the online trading and investment specialist.
The by-product risk of central banks increasingly looking to use indirect helicopter money to spark economic growth is the creationof strong economic currents which bring much higher volatility, risk and a stronger US dollar, believes Jakobsen.
Speaking from Saxo Bank’s office in Dubai International Financial Centre (DIFC), Jakobsen said: “A stronger US dollar combined with the US Federal Reserve’s intention to hike interest rates by December this year almost guarantees a dramatic increase in the probability of a recession in the US. This recession will be the real challenge to the policy makers and what’s unfortunate is that it comes during a period when there are several major political elections in Europe and the US.”
“Our #SaxoStrats forecast is that 2017 is going to see weakness in emerging markets, oil, gold and silver against the rising US dollar. Furthermore, the change in the US central bank’s policy from infinite monetary easing to indirect helicopter money will ultimately raise both inflation and growth, but only through a recession.”
A recession in the world’s largest economy would have a wide-reaching impact, particularly the risk of a poorly performing US economy dragging down global growth and potentially spawning a global recession.
Speaking about Middle East economies Jakobsen said: “There has been significant inflow into the Middle East bond market. Much of the investment is based on ‘yield pick-up’ – the additional interest rate an investor receives when selling a lower-yielding bond in exchange for a higher yielding bond – which could reverse if we start seeing higher and more attractive rates in the US.”
“Furthermore, the WTI Crude oil price should hit highs between US$50 and US$53 next year, which will continue to heap further pressure on oil-producing economies with budget deficits, such as Saudi Arabia. And, if my prediction of a US recession is shown to be correct, total demand for oil should also come under pressure.”
“Looking at all the external factors that will influence Middle East economies, my outlook is that 2017 will be a challenging year for the region. The focus locally should be to diversify and balance the economies better.”
Steen Jakobsen’s visit to Dubai comes after two new senior appointments have been made to support the Middle East business of Saxo Bank. Mario Camara has joined the company as Head of Saxo Dubai and Anwaar Ahmed has been appointed Head of Institutional Business Development MENA. Both appointments support Saxo Bank’s continuing growth in its retail and institutional functions across the Middle East, and underline the region’s importance as a growth hub for both Saxo’s retail and institutional business.
Read more in the original document.