The view from Washington: weak and precarious growth fuels political risk


Efic’s October special edition of World Risk Developments provides an insight into Senior Economist, Cassandra Winzenried’s impressions of the Institute of International Finance (IIF) conference held in Washington DC earlier this month.

Overall, the mood at October’s IIF meeting was pessimistic. An association representing over 500 international banks and asset managers, the IIF downgraded its global growth forecast to 2.4% this year, which would be the lowest result since 2009.

“The downgrade has been driven by advanced economies, primarily a result of Brexit and a prolonged soft spot in the US. However, as outlined in last month’s WRD, emerging markets will gain momentum. And while progress is uneven, some of Australia’s largest emerging market trade partners are leading the way,” says Winzenried.

Concerns about the risk of a sharp Chinese slowdown, and even financial crisis, have eased due to increased public spending boosting activity and more consistent and transparent exchange rate management. “The stable conditions in China are generally benefitting the rest of emerging Asia with robust domestic demand and an upturn in the tech cycle.”

“According to the IMF, India, our fifth largest export market, will continue to be the fastest growing major economy, expanding 7.6% next year,” says Winzenried.

While the news for Australia’s economy may be optimistic, the lacklustre world economy has been low for too long and the benefits spread among too few that the gap between rich and poor continues to rise to its highest level in decades.

“Four of the IIF’s top five risks are political and stem from a surge of populism and protectionism,” says Winzenried. From opposition to globalisation and immigration to threats to EU unity, Winzenried comments that the political risks and potential for misguided policies are daunting.

“Though they need to be put in context. Those at the conference console themselves with the view that virtually all major historical global geopolitical shifts have yielded no lasting effects on global capital markets. However, unless broader reform ensues, the medium term risk of a disruptive adjustment will continue to rise.”

Read the full October special edition of Efic’s World Risk Developments on the Efic website.

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