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World Risk Developments February 2017

Efic’s first edition of World Risk Developments for 2017 reviews 10 events which have brought in the New Year, including President Trump’s proposed border tax, efforts to curb China’s credit growth and Greece’s resurfacing debt troubles.

Aimed at countries that have trade surpluses with the US, President Trump’s proposed border tax may place exporters from Mexico and China at greater risk. “The GOP is also considering a border-adjustment tax. This is intended to favour businesses that source their inputs from the US and export,” says Efic’s Senior Economist, Cassandra Winzenried.

Winzenried says the impact on Australian exporters would initially be negative, but a stronger USD may help restore competitiveness.

China’s credit growth has shown no signs of abating, with China’s banks extending a record US$1.8 trillion of loans last year. However, China’s central bank surprised markets by lifting its key policy interest rate this month, the first rise in six years. “This adjustment was modest, but it shows commitment to contain unsustainable credit growth. And suggests the central government is preparing for lower growth,” says Winzenried.

This change may stem upward pressure on Australia’s key commodity prices, but Winzenried says it reduces the risk of China facing a hard landing.

Meanwhile, Greece appears to be on the brink of a default, again. “Differences between the IMF and EU over possible Greek debt relief could deny Athens the €7 billion it needs to stave off bankruptcy,” says Winzenried.

Most EU members are reluctant to grant Greece debt forgiveness, and with the rise of eurosceptics and upcoming elections in France and Germany, politicians in creditor countries are unlikely to break rank. Winzenried says the cost of not doing so could be increasingly great, potentially reaching beyond Europe, to the rest of the Globe.

Other topics canvassed in this month’s edition include:

  • UK one step closer to finalising Brexit
  • Bold reform weighs on India’s short term prospects
  • Philippine mine closures demonstrate contract alteration risks in the mining sector
  • New Indonesian divestment requirements move toward resource nationalism
  • Turkish constitutional referendum held amid growing economic instability
  • Lower foreign investment in Emerging Markets set to persist
  • IMF forecasts world growth acceleration but highlight trade uncertainties

Read the full February edition of Efic’s World Risk Developments here.

For further information, please contact

Marijana Okanovic
Efic
Phone: +61 2 8273 5471
Mobile: +61 427 363 548
Email: mokanovic@efic.gov.au