The failed coup in Turkey, impeachment of Brazilian President Dilma Rousseff and the protectionist sentiments expressed during the run-up to the US presidential election also created economic uncertainty. As a result of these conditions, Oxford Economics estimates that the global economy grew just 2.3% in 2016 — the slowest rate since 2009. Looking ahead, several of these uncertainties will persist into 2017. Following the US presidential election in November, financial markets have been bouyed by President Donald Trump’s pledges to cut taxes and boost infrastructure spending. But it remains unclear to what degree the new administration will pursue campaign promises to implement protectionist trade policies and increase the deportation of illegal immigrants. Moreover, as the UK government prepares to trigger Article 50 in March 2017, uncertainty about the UK’s future relationship with Europe will persist well into 2018. On the positive side, worries about financial stability in emerging markets should ease. Assuming governments in commodity-exporting economies such as Brazil, Russia and the Middle East continue to take measures to trim spending and raise non-oil revenues, currencies in these markets should stabilize, inflation should slow and fiscal deficits should narrow.
The risk of a sharp economic slowdown in China, political and financial turmoil in oil-producing emerging markets, the UK’s decision to leave the EU, and the build-up to the US election are just a few factors that dampened the global economic outlook for 2016.
So while we expect global deal making to fall a little further in 2017, transactional activity should rebound in 2018 as clarity emerges on key issues such as the UK-EU relationship, US policy towards global trade and investment, and ongoing progress in rebalancing China’s economy. Key strengths in the global economy should support an increase in deal activity in subsequent years, including:
STILL-LOW INTEREST RATES. Markets correctly anticipated a Federal Reserve rate hike in December 2016, and we expect one more hike in 2017, and two in both 2018 and 2019. But even after these increases, US interest rates will remain historically low, alongside cheap financing in the Eurozone, UK, and Japan.
SOLID US CONSUMER SPENDING. Low unemployment, growing wages, a stronger dollar and low energy prices are boosting household spending power in the US.
A RELATIVELY SMOOTH ECONOMIC TRANSITION TO CHINA. With service sectors leading growth and the government making progress in closing unprofitable coal mines and steelworks, growth should gradually slow to 6% to 6.5% per year, avoiding a sharp decline in industrial activity.
A EUROZONE RECOVERY DESPITE BREXIT. Business investment and job creation in the Eurozone has remained steady despite the Brexit vote in June, suggesting that Europe’s economic recovery will continue even as the UK, a key trading partner, experiences slower growth.
THE STABILIZATION OF OIL PRICES. A gradual recovery in oil prices will create greater economic and financial certainty in commodity-exporting economies, particularly in emerging markets. But since the rate of price increases will be steady (we forecast that oil prices will remain below US$60 per barrel until late 2019), households will not experience a sharp rise in the cost of energy and fuel, which should help protect global consumer spending power.
HISTORICALLY HIGH CORPORATE CASH BALANCES. Assuming that attitudes do not harden against free global trade and investment, corporate leaders in advanced economies are likely to regain confidence in the market and start investing the reserves they’ve been stockpiling since the global economic crisis.
Taken in tandem, we expect these conditions to support a gradual pickup in global economic growth in the years ahead, rising to 2.6% in 2017, and 2.8% in 2018. As threats to the stability of the global economy ease, and dealmakers regain confidence in the market, their apprehension will turn into appetite.
GDP-GROWTHBRENT-CRUDEINTEREST-RATES
GDP GROWTH IN ADVANCED AND EMERGING ECONOMIES
BRENT CRUDE OIL PRICES
INTEREST RATES IN ADVANCED ECONOMIES
Oxford Economics estimates that the global economy grew just 2.3% in 2016 — the slowest rate since 2009.
KEY MACRO TRENDS
down-arrow-red-v1
Michael F. DeFranco
Koen V. Vanhaerents
Contact
top-arrow
Global M&A Outlook
Regional M&A Outlook
Sector M&A Outlook
IPO Outlook
Appendix A: Transaction Attractiveness Indicator
Appendix B: Country Forecasts
Appendix C: Methodology
M&A Transactions (US$B)
M&A Transactions (# Of Deals)
Domestic IPOs (US$M)
SUMMARY
INTRODUCTION
MACRO TRENDS
Baker-McKenzie-New-Logos
RISKS
CONCLUSION
HOME
INTERACTIVE TOOL
hamburger
HOME
MACRO TRENDS
INTERACTIVE TOOL
SUMMARY
INTRODUCTION
RISKS
CONCLUSION
FORECASTS
red-menu-arrow
red-menu-arrow
APPENDIX
FORECASTS
red-menu-arrow-v1
x-toc
APPENDIX
red-menu-arrow-v1
RETURN TO BAKERMCKENZIE.COM
white-banner-arrow-2