In a low-growth world, traditional assumptions about the global economy will be overturned.
Some things in economics ought to be reliably predictable, year after year. Wage restraint in Germany is one. Economic misery in Argentina is another. Hard-nosed tax officers are almost as certain as tax (and death) itself. But 2017 is shaping up to be a year in which many economic conventions are turned upside down. There are three particular trends to look out for.
First, the slow-burning effects of negative interest rates across much of western Europe and Japan will start to influence behaviour in odd ways, including the manner in which tax is collected. Second, countries with an ironclad reputation for thrift, notably Germany, will start to spend a lot more freely. The third upside-down trend is that unstable trouble spots such as Argentina will register some of the strongest growth in GDP.
For a second oddity in 2017, look to habitually high-saving countries, notably Germany. Its current-account surplus, a broad measure of its international trade, was above 8% of GDP in 2016. A country with a surplus of this size would normally see an eventual rise in its exchange rate to encourage imports and discourage exports. But Germany is locked in a currency union with countries that are less competitive in export markets: the euro’s trajectory must reflect the influence of Spain, Italy and other members, too. So the adjustment will come in other ways: through stronger wage growth, easier credit and faster house-price inflation.
Russia’s economy is also set to bounce back from recession. Its currency is cheap; inflation has fallen from a peak of over 15% in early 2015 to around 6% and should fall further; and, almost unnoticed, Russia has been reforming. It has moved to 51st in the World Bank’s ease-of-doing-business rankings, from 123rd in 2011. Look out for eyebrow-raising GDP growth in Pakistan, Romania, Nigeria (currently in recession) and perhaps even Egypt, which has sharply devalued its currency. These are not places that have got economic policy right in the recent or distant past. But then 2017 will be an upside-down kind of year.