Positive developments in the US and Chinese economies are expected to drive global growth significantly in 2017, which might surpass last year’s growth, according to the forecast made by VanEck Australia.
With global growth expected to be on a positive trajectory this year, the Australian economy would also see a positive outlook.
According to VanEck Australia’s director, investments and portfolio strategy, Russel Chesler, a strong pipeline of housing activity coupled with the weakening of the Australian dollar and bounce in commodity prices would be one of the key factors driving the economy in 2017.
Also, both tourism and retail sales would continue to improve, setting the scene for increasing equity prices.
As far as other regions were concerned, Chesler expected the US gross domestic product (GDP) to stay in the range of two to three per cent this year. Additionally, the US unemployment levels were predicted to be reasonable in 2017 while fiscal easing together with tax reform and infrastructure spending should help drive the US economy further.
However, he added that the possible modest overheating in the US economy by the end of the year could be tempered by increasing interest rates.
At the same time, China would be expected to see ‘a bit of a bumpy deceleration’ but its economy would still manage to hit the 6.5 per cent growth target, driven by ongoing infrastructure and consumer spending.
According to Chesler, the main risk in China would be credit growth which needed to be “carefully managed”.
He also said that China’s inclusion into the MSCI EM Index could be on the cards in 2017.
Europe, on the other hand, would see some ‘big unknowns’ this year but in general terms it should be expecting growth rates similar to last year.
The unknowns would include the upcoming elections in Germany and France in 2017 and associated market volatility, while Brexit and US President-Elect, Donald Trump’s win could indicate the beginning of big changes in Europe.
According to the firm, the Reserve Bank of Australia (RBA) cash rates would remain low with a possible further cut in 2017, however a rate hike would be unlikely.
“We believe there are better opportunities for growth and yield outside the top 10 shares in the large and mid-cap space. We are positive on companies which generate offshore income because we believe that the Australian dollar still has more to fall,” Chesler said.
“Strategies with an inherent value bias should continue to outperform this year on the back of strong performance towards the end of 2016.
“Overall we expect shares are likely to trend higher this year, resulting in positive returns in 2017.”
