T. Rowe Price expects a slight improvement in the global economic environment in 2017 helped by the growth rebound in the U.S., Canada, Brazil and Russia – but deleveraging and restructuring headwinds persist.
"Economic growth has improved in the second half of 2016 as the impact of the commodity price plunge fades," according to Alan Levenson, chief U.S. economist at T. Rowe Price.
Levenson says the U.S. expansion, which is in transition from midstage to late-stage, still has room to run.
"U.S. expansion could go another three years," Levenson said at T. Rowe Price's global market outlook press briefing held in mid-November in New York City. "Near-term recession risk is low. The big takeaway here is pre-crisis growth was a lot stronger than post-crisis growth."
And, while global growth quickened at midyear, post-crisis headwinds could limit the recovery.
According to Levenson, deleveraging has taken divergent paths. Within developed markets, the U.S. and the U.K. trend lower, and the rest of the developed markets, excluding Japan, trend sideways or higher.
By contrast, China and several other emerging market economies have witnessed a post-financial crisis debt surge, with China's debt currently representing more than 200% of gross domestic product. China is not alone; South Korea's debt is nearing 200% of GDP as well, and both Chile and Malaysia's debt loads have surpassed 125% of GDP.
Looking at global inflation, Levenson finds that emerging markets are following developed markets lower.
According to Levenson's outlook, developed market inflation remains broadly below central bank targets, and emerging market inflation will follow developed markets lower as currencies stabilize.
There's also uncertainty and unpredictability surrounding the impending Trump presidency that could negatively impact U.S. and global financial markets.
