The earthquakes are over. And here’s a guide to the year of the aftershocks
The economy survived Brexit, Trump and political chaos in 2016 . Now it must do it again
What’s financially in store for us in 2017? How will our wages, pension, investments, household bills and property prices fare as the year unfolds?
That depends on what happens across the Atlantic and the Irish Sea as we await the real outcome of Brexit and the surprise election of Donald Trump as US president.
These events sent seismic shocks through the world in 2016 – but they haven’t actually happened yet.
The expected slump in the price of shares and other assets didn’t materialise either.
Instead, after initial wobbles, global markets decided that, actually, Trump and Brexit weren’t so bad after all and continued racing ahead.
The US markets are now at dizzying heights – but more political storm clouds are gathering as we head into 2017.
Will shares continue to race ahead albeit along the edge of a cliff – or will they be buffeted off the edge by the coming gales?
Here’s the economic weather forecast for the year ahead:
ECONOMY
The economy is the tide that lifts all boats. The Economic and Social Research Institute predicted growth of 3.5% for 2017. Accountants Ernst & Young went for a lower figure of 2.9% as it believed 2017 will be ‘tougher going’ than 2016.
Most pessimistic are stockbrokers Cantor Fitzgerald which cut its expectations in the wake of Brexit to just 2.4%. That’s not exactly terrible but the downward trend is worrying, particularly with Brexit on the horizon.
A ‘hard Brexit’ could reverse the positive trend leading to job losses and a shrinking instead of a growing economy.
WAGES
In the last five years, hourly earnings have actually fallen.
Back in 2011 we earned €21.60 an hour on average – compared to €21.55 in the third quarter of 2016.
The Irish Congress of Trade Unions (Ictu) wants members to seek annual rises next year of at least €1,000 or 4% – whichever figure is higher.
However, with prices dropping in an era of deflation, private sector unions would do well to get 2% in 2017
ENERGY COSTS
Heating and electricity costs fell last year, but are set to rise by a predicted 5% in 2017.
However, you could save far more than that by joining the 15% of people who switch provider every year. See Best Buys.
EMPLOYMENT
Employment prospects are positive due to the strong economic recovery.
The ESRI expects the jobless total to keep falling to 6.8% by the end of 2017 – the lowest since the crash began in 2008.
But, again, the outlook from this year on is more uncertain in the light of Brexit.
PROPERTY PRICES
Property rose 7% in 2016 and the trend is expected to continue this year fuelled by an ever-growing shortage of homes.
Estate agents Douglas Newman Goode expect prices to go up by 7.5%-10% in Dublin.
Properties priced below €220,000 and located outside Dublin are expected to rise 10%.
Davy Stockbrokers’ forecast is for a national 7% increase, following the introduction of the help-to-buy scheme in Budget 2017.
Agents Knight Frank, are less bullish, predicting 5% growth.
And global debt experts Standard & Poors put the figure at less than half that – 2.5%.
Whoever is right, the trend seems to be upwards with prices likely to continue rising, even as output of new homes swells to around 18,500 in 2017.
The joker in the pack is the rent control legislation that came in just before Christmas, which will surely drive at least some reluctant landlords out of the market and rein in prices to some extent.
INVESTMENTS AND PENSIONS
Share-buyers globally have taken the view that stock markets will keep rising.
Buyers are still to the fore, driven by a collective fear of missing out on another bonanza year in 2017.
Helping the bullish trend is a pledge from US President-elect Trump to bring in an incentive for US companies to repatriate hundreds of billions from abroad.
‘That’s a lot of that money that will probably be used for share buy backs…(and) the hope is that companies will also invest,’ said Richard Hunter, head of Research of London-based Wilson King investment management.
But the party could soon be over.
Investors are ever-more fearful of an inevitable drop in markets with yet more political upheaval on the horizon.
Next up is Italy, where bank balance sheets are weighed down by €360billion in bad loans.
‘Italy is now seen as the most likely member of the Eurozone to leave the bloc.
‘But a lot will depend on the outcome of the next general election there, now likely in 2017 along with the Netherlands [March 15], France [April 23 and May 7] and Germany [sometime in September],’ said Mr McQuaid.
Financial adviser Rory Gillen of Gillen Markets agreed: ‘The euro was a political construct and in 2012 the politicians along with the ECB put up a good fight in defence of [it].”
‘But electorates are taking over now and we believe there is a rising probability of an Italian exit from the euro.’
There are also concerns that the US shares market is overheated.
‘Money is piling into US markets. The Dow Jones is at new highs,’ Nick Batsford, CEO of TIP TV told MailOnline’s Investing Show.
‘We’re getting to an area where it’s becoming very, very dangerous. It’s too one-sided, that, for me.
‘Everyone should be more cautious in all this euphoria.
‘We’re in the latter stages of a bull market. Picking the top is the most difficult game in the world.’
INTEREST RATES
The US Federal Reserve has already started to raise interest rates, signalling that the global era of extraordinarily low rates is coming to an end.
And if incoming President Trump spends as big as he talks, this is expected to ramp up global inflationary pressures that could see further rate increases to combat rising prices.
However, with the EU in political turmoil, European interest rates are likely to be kept low for as long as possible to keep the economy on an even keel.
‘I don’t see an official rate increase from the ECB in 2017, with the earliest move maybe some time in 2018,’ said Mr McQuaid.
‘If political tensions cause mayhem in the markets, then a rate increase will be postponed indefinitely.’
CURRENCIES
Again, political tensions in Europe will drive down the euro’s value, against even lowly sterling.
Many experts predict it will fall to parity with the rampant dollar, while the world’s biggest investment bank JP Morgan predicted a rate of 90p sterling by the end of 2017.
Alan McQuaid thought the euro could go even lower, easing the pressure on Irish exporters post-Brexit.
‘Political tensions will mount in 2017 with euro-sceptics performing well [in elections], pushing the euro down to parity against the dollar and back to 80p versus the pound, irrespective of Brexit concerns,’ he said.
‘And if [National Front leader] Marine Le Pen wins the upcoming election in France then all bets are off.’