Accelerating inflation and a soaring US dollar as the Federal Reserve raises interest rates are also risks to the economic balance, magnified by that pending stimulus.
Much may hinge on financial markets, which for a brief period around the start of this year looked like their fretting over China might throw the global economy off track. There is plenty more uncertainty about trade with China now than then.
So, many of the several hundred professionals polled by Reuters worldwide say the global trade slowdown during the world economy’s lukewarm recovery from financial crisis that started nearly a decade ago could worsen.
Emerging economies will remain vulnerable. Brazil’s persistent, crippling recession is way out of line with its soaring stock market, and much of Asia will grow below potential, putting the latest global growth forecast for the year ahead at 3.2%, less optimistic than it was this time last year.
For the developed world, meanwhile, it has been productivity gains that have been lacking for so long and policymakers remain at a loss on the reasons why, and how to remedy the problem.
The U.S. jobless rate is already down to 4.6% and hiring slowing, so economists say improving growth in output per worker will be crucial for prosperity.
“Mr Trump and his team have promised growth of 3.5 to 4% or more, which we see as ‘magical thinking’ unless accompanied by accelerated productivity growth,” noted Michael Carey, US economist at CA-CIB in New York.
Markets out of step
The most optimistic US growth forecast for any point in 2017 in a Reuters poll taken a month after Trump’s shock election victory was 3.8%, well short of the peak rate in a business cycle that is already mature by past standards.
The consensus, in line with the Fed’s view, is a little above 2%. That is similar to a Reuters poll outlook for 2016 in a series of forecasts made a year ago on growth, rates, inflation and foreign exchange that were broadly accurate.
Such lukewarm growth does not compute with another set of wildly bullish stock market views, although it is clear many strategists who initially said Trump would be a threat to markets have abruptly changed their minds since the election.
Strategists foresee a rising US dollar, already at a 14-year high, and US Treasury yields edging up as the Fed follows through with more rate hikes next year. But Wall Street isn’t convinced yet there will be three more.
A rising dollar may blunt future performance of US companies, many dependent on international business for revenue. Many of their share prices trade near record highs, but propped up by buyback schemes and stimulus, not business investment.