Almost every analyst, when pressed, admits at least some degree of surprise, at the post-EU referendum performance of the markets and the wider UK economy. The consensus, back in June 2016, was that the UK would be in the midst of a downturn, or even a recession.
Where current division of opinion exists between analysts, it focuses on the UK’s forecast GDP growth in the immediate and mid-term, and the performance of sterling on the currency markets.
For economists and market analysts, what’s not to like?
The FTSE is trading at record levels. Yesterday it reached its 11th record close in succession – 2017 has started in a spectacularly positive fashion.
Added to the performance of the market, the UK is expected to become the strongest performing economy in the G7 this year.
New figures from the Halifax show that sales of houses to first time buyers have reached a 10-year high. The housing market, outside London at least, is still booming.
Reports of retail sales from the UK’s biggest companies have been almost exclusively positive – it was a bumper Christmas for companies such as Marks and Spencer and Tesco.
Inward investment doesn’t seem to have been too badly affected by the Brexit vote. Google, Facebook and Snapchat have all recently announced new job creation in the UK.
The Bank of England has downgraded the risk of Brexit as the key risk for medium-term financial stability.
With Donald Trump’s inauguration, a week today, the prospect of a new tax-reduction stimulus in the US is likely to trigger GDP growth not seen since bad days of 2008 and the financial crash.
Despite a cautious start to 2016, after a record year for Mergers and Acquisitions (M&As) in 2015, the number and value of UK M&As reached a record in October last year. This trend could continue in the first quarter of 2017.
All things considered, the analysts might say, things are looking distinctly rosy for the City of London, the wider UK economy, and indeed the global economy.
Of course, there is a slight worry, even for the most optimistic analysts, of the ongoing stability of the Italian banking system. Most banking experts point out that the European Central Bank and the Italian authorities seem to have the situation under control.
The credit boom in the UK, marked most recently by near-record levels of spending on credit cards, adds a slight background concern. Set against the recent positive news these two issues have done little to dent the confidence of the markets.
The London housing market has been subdued in recent months. Most of the slow-down in sales is attributed to the top end of the housing market in the capital – those properties for which the asking price is many millions of pounds.
The unexpected slow-down in third-quarter GDP growth in Germany, announced towards the end of 2016, is not necessarily troubling to those traders who built in some uncertainty to their positions after the Brexit vote. It is entirely possible that the results for Q4 will show the German economy is growing more strongly, particularly when sectors that benefit from seasonal spending are factored in.
VW has seemingly settled its fines and compensation with the US authorities for the catastrophic diesel emissions scandal and is planning for the compensation packages to address the litigation it faces in other countries outside the United States.
In China, to consolidate his hold on power, President Xi Jinping is likely to ensure sufficient liquidity for banking sector investment in state-owned and quasi-state-owned companies this year. This will help to offset concerns, which emerged in 2016, that a significant slowing of economic growth in China was caused by the inability of these companies to compete in world markets, to modernise and adapt to changing management practices and, crucially their indebtedness. In genuinely competitive domestic and global markets these companies would have gone under. The prevailing thinking, as we start 2017, is that Xi Jinping will not risk his position by allowing economic instability to persuade his ruling party colleagues to choose another leader at the 19th National Congress to be held in the second half of the year.
The situation is not entirely different in the key Asian markets for 2017. Most analysts predict modest market gains this year – single digit growth – partly the result of anticipated fiscal stimulation, fiscal reform and moves to address corruption and the hidden economy, by governments in key economies across Asia. As an example, India’s move towards national sales tax reforms and encouraging changes in attitudes, rigidly held in relation to the cash society, are expected to lead to increased government revenues in the longer-term and a greater degree of scrutiny and transparency for economic activity in India.
For a profession supposedly facing an existential crisis of purpose, not to mention a crisis of confidence, it is difficult to find an economist unwilling to predict the state of the UK or global economy at the end of 2017.
There is a general consensus that the world economy faces as many key challenges in 2017 as it did last year. Major national elections in the Netherlands, France and Germany, clarity on likely Brexit outcomes, further interventions to stabilise the banking sector in Italy, how the Trump plan for the US economy translates into policy and the level of public sector borrowing in key countries.
This consensus extends to an overall prediction of modest market gains this year alongside modest economic growth in the global environment. Very few analysts predict significant market corrections, financial crises or global economic downturn.
A review at the end of the first quarter will provide a stronger indication of whether the general consensus of economists and analysts is on track for the year ahead.