FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 01 January 2017

New Global Events Lead To More Uncertainty

from the Dallas Fed

-- this post authored by Arthur Hinojosa

Events in the last month and a half such as the U.S. presidential election result, the rejection of the Italian referendum and India’s currency reform have increased uncertainty in the global outlook. Additionally, the impact of “Brexit" still remains uncertain because final separation agreements between the U.K. and its European trading partners have yet to be formulated. Most recent data do not yet reflect the latest global events, with the outlook for global growth (excluding the U.S.) little changed since the November Federal Open Market Committee (FOMC) meeting.[1]

Global Economic Outlook Remains Relatively Unchanged

The Dallas Fed’s Database of Global Economic Indicators (DGEI) global gross domestic product (GDP) growth aggregate (excluding the U.S.) shows growth at 2.8 percent year over year for the third quarter (Chart 1). Most of the global GDP growth can be attributed to two emerging-market economies, China (6.7 percent) and India (7.1 percent). Since the last FOMC meeting, expectations for 2016 GDP growth were revised up for the U.K. but were offset by downward revisions to Brazil. Even with the lower expectations for Brazilian GDP growth, the country’s economy is still expected to exit from recession next year.

Chart 1

The Dallas Fed’s DGEI consumer price index (CPI) indicates year-over-year growth of 2 percent for the global aggregate (excluding the U.S.) in October. Inflationary pressures remain highest in emerging-market economies but low in advanced economies. However, inflation in advanced economies has seen a year-over-year increase in the three months ending in October, largely due to stabilization in energy prices.

Vulnerability in Emerging-Market Economies Persists

President-elect Donald Trump has talked about tax cuts and a stimulus package, and many are speculating on what this will mean for the global economy. Chart 2 shows policy rates for emerging-market economies. On Dec. 1, Brazil lowered its policy rate 25 basis points from 14 percent to 13.75 percent - the second such move in two months.

Chart 2

The current appreciation of the U.S. dollar (USD) is another source of concern for emerging economies with extensive dollar-denominated debt, triggered by expectations of combining loose fiscal policy and tight monetary policy. The trade-weighted value of the USD, the exchange rates of foreign countries weighted using trade data, has been appreciating since Trump’s victory on Nov. 8. Mexico has been the hardest hit from the dollar appreciation, which has appreciated 9.1 percent against the Mexican peso since the U.S. presidential election and 17.1 percent since the beginning of 2016 (Chart 3). On Nov. 17, Banco de México raised its policy rate 50 basis points amid peso weakness.

Chart 3

New Risks Affecting the Global Economy

The appreciation of the USD isn’t the only new risk to the global economy. On Dec. 4, Italy rejected the referendum put forward by Prime Minister Matteo Renzi, which now puts the European banking system back at the forefront of perceived global problems. The world’s oldest bank, also Italy’s third-largest bank, Banca Monte dei Paschi di Siena, recently had the worst assessment from the European Central Bank’s stress tests due to a large portion of nonperforming loans. With the rejection of the Italian referendum, a bailout, if needed, appears less likely. As seen in Chart 4, Italy has the largest debt burden in Europe at 136 percent of GDP, excluding Greece (180 percent).

Chart 4

India is also adding uncertainty to global markets due to an effort to bring “black money" back into the taxable economy. India’s announcement on Nov. 8 caught the world by surprise, including the people of India. The decision to do away with the 500 and 1,000 rupee notes has caused a rush to deposit household cash into banks. The deadline for conversion of these two types of banknotes to new usable notes is the end of December, which has led to long lines at banks as people try to preserve their savings. It has been estimated that the two banned banknotes account for 80 to 85 percent of the cash in circulation. With India’s economy being a key driver of world growth, this can have a significant impact on markets, with potential spillover effects being felt globally.

Uncertainty Likely to Linger in the Near Term

Weak economic growth keeps a lid on prices. Therefore, inflation in advanced economies, although on an upward track, is likely to remain below central bank targets. Dollar appreciation and a potentially faster pace of policy tightening in the U.S. are being viewed as downside risks to emerging-market economies with significant outstanding dollar-denominated debt.

Old risks still exist in the background such as China’s high debt-to-GDP ratio and aging population in advanced economies, as new risks have emerged leading to greater uncertainty in the global economy. As we wait to see how these events play out, forecasting the future global economy remains challenging.


  1. “Risk, Uncertainty Separately Cloud Global Growth Forecasting," by Alexander Chudik, Enrique Mart'nez-Garc'a and Valerie Grossman, Federal Reserve Bank of Dallas Economic Letter, vol. 11, no. 9, 2016.

About the Author

Hinojosa is a research analyst in the Globalization Institute at the Federal Reserve Bank of Dallas.


>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Democratic Development Lowers the Cost of Credit
Is Growing Household Debt An Economic Counter-Dynamic?
News Blog
February 2017 Texas Manufacturing Survey Continues to Expand But Key Internals Declined
January 2017 Pending Home Sales Index Declines
PEOPLE ARE AWESOME 2017 Amazing Talented Kids Compilation
Durable Goods New Orders Improved in January 2017
China's Continuing Credit Boom
Infographic Of The Day: Ten Interview Questions That Make You Sound Dumb
Early Headlines: Asia Stocks Down, Oil Up, Dollar And Gold Steady, UK Inflation, 'Moonlight' Wins Oscar, LSE Merger May Be Off, Greek Banks, India Going Green And More
Most Read Articles Last Week Ending 25 February
How British Businesses Helped The Confederacy Fight The American Civil War
Where You Can Surf A Lot For A Little In The EU
'I Can Live With Either One': Palestine, Israel And The Two-state Solution
Where Snapchat's Users Come From
What We Read Today 26 February 2017
Investing Blog
The Week Ahead: Reality And Stock Prices
Snapchat Still Has Some Growing Up To Do
Opinion Blog
What Do You Call A Lie Constructed From Other Lies?
Why Winning The French Presidential Election Could Be A Poisoned Chalice
Precious Metals Blog
Deflation And Gold: A Contrarian View
Live Markets
27Feb2017 Market Update: US Major Indexes Once Again Grab The Golden Ring With New Historic Highs, Proving The Naysayers Are Wrong Again As The Trump Rally Pushes Higher
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved