Glob­al­iza­tion took hits in 2016

Where will 2017 lead us - to more or less?

Kuwait Times - - BUSINESS -

LON­DON:

2016 was the year when glob­al­iza­tion, the path that the world econ­omy has largely fol­lowed for decades, took some hefty blows. The elec­tion of Don­ald Trump as US pres­i­dent and Bri­tain’s de­ci­sion to leave the Euro­pean Union have raised ques­tions over the fu­ture of tar­iff-free trade and com­pa­nies’ free­dom to move pro­duc­tion to lower-cost coun­tries. Bor­ders are back in vogue. Eco­nomic na­tion­al­ism is pay­ing po­lit­i­cal div­i­dends. “We want our coun­try back” was the ral­ly­ing cry of those back­ing Brexit. A sound bite that had echoes in Trump’s “Make Amer­ica great again.” Next year, there’s scope for more un­cer­tainty with elec­tions in France and Ger­many to name just two. Trump and Brexit were just two of the year’s top sto­ries in the world of busi­ness.

Brexit shock

In what was a sign of things to come, Bri­tain voted to leave the EU in a ref­er­en­dum in June. The de­ci­sion came as a sur­prise - cer­tainly to book­mak­ers and many poll­sters who had con­sis­tently given the “re­main” side the edge - and means Bri­tain has to rede­fine it­self af­ter 43 years of EU mem­ber­ship. Prime Min­is­ter David Cameron has re­signed and the new gov­ern­ment led by Theresa May is plan­ning to trig­ger the for­mal process by which the coun­try ex­its early next year. There are many shades of po­ten­tial Brexit, from an out­right di­vorce that could put up tar­iffs on goods and ser­vices, to a more am­i­ca­ble part­ing that sees many of the cur­rent trad­ing ar­range­ments kept in place. The pound’s fall to a 31-year low below $1.20 at one point is tes­ta­ment to that un­cer­tainty.

Trump card

Poll­sters and book­mak­ers got it wrong again a few months later when Trump de­feated Hil­lary Clin­ton in the pres­i­den­tial elec­tion. Whether he trans­lates his “Amer­ica First” plat­form into ac­tion fol­low­ing his inau­gu­ra­tion in Jan­uary will help shape the global econ­omy for the next four years at least. Trump has railed against long-stand­ing trad­ing agree­ments, in­clud­ing the North Amer­i­can Free Trade Agree­ment, pun­ish China for the way it de­val­ues its cur­rency against the dol­lar, and tax US firms that move jobs over­seas.

Mar­kets march on

Trump’s vic­tory did not cause the bot­tom to fall out of the stock mar­ket rally that’s been largely in place since 2009, when the world econ­omy started to first claw out of its deep­est re­ces­sion since World War II. In fact, both the Dow and the S&P 500 ral­lied to hit a se­ries of record highs. Stocks have also ben­e­fited from a raft of big cor­po­rate deals this year - ex­ec­u­tives are see­ing takeovers as a fast way to gen­er­ate growth in what is oth­er­wise a low-growth global econ­omy dis­rupted by non-stop tech­no­log­i­cal in­no­va­tions. No­table deals in 2016 in­cluded the an­nounce­ment of an $85 bil­lion merger of Time Warner and AT&T and the $57 bil­lion takeover of Mon­santo by Ger­many medicine and farm-chem­i­cal maker Bayer. The $100 bil­lion takeover of SABMiller by Bud­weiser maker An­heuser-Busch InBev was also com­pleted.

China’s key role

As the world’s sec­ond-largest econ­omy, China is play­ing a big­ger role in the func­tion­ing of the global econ­omy. Nowhere was that more ev­i­dent than in the early months of 2016, when jit­ters over the scale of the slow­down in China caused wild swings in fi­nan­cial mar­kets. Stocks took a pound­ing while com­modi­ties tanked, with oil skid­ding to 13-year lows, as traders fac­tored in lower de­mand from re­source-hun­gry China. The slump in com­modi­ties weighed heav­ily on economies like Aus­tralia that are big ex­porters of raw ma­te­ri­als. China’s econ­omy is end­ing the year in rel­a­tively good health as au­thor­i­ties try to pivot the econ­omy’s fo­cus from man­u­fac­tur­ing to more con­sumer spend­ing. But Trump’s prom­ises to take a tough stance in trade will be fo­cus­ing minds in Bei­jing.

OPEC takes a stand

For the first time since Dec 2008, at the height of the fi­nan­cial cri­sis, the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries cut its pro­duc­tion lev­els. Novem­ber’s cut, soon fol­lowed by non-OPEC coun­tries like Rus­sia, helped push oil prices sharply higher. At over $50 a bar­rel, bench­mark New York crude is markedly higher than the near 13-year lows around $30 recorded at the start of the year, when in­vestors fo­cused on high sup­ply and con­cerns over an eco­nomic slow­down. The oil slump helped put sev­eral crude-pro­duc­ing coun­tries into se­vere re­ces­sions, in­clud­ing Brazil and Venezuela, and even saw wealthy Saudi Ara­bia cut back on spend­ing. The ques­tion for 2017 is whether OPEC - and non-OPEC - coun­tries can de­liver on their pro­duc­tion prom­ises. If they do and higher oil prices stick, that will push up in­fla­tion in the global econ­omy. — AP

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