USA China

Brexit, Trump & economic future scenario

Laura Oliva Fx Leave a Comment

World growth remains low. The latest estimate from the International Monetary Fund shows  growth for 2016 of 3.1%, less than was estimated in April. The reasons for the decrease of growth estimates are Brexit and weaker than expected growth in the USA.

World Economic Outlook by IMF

World Economic Outlook by IMF

How is the world economy going?
The rise of economic political and institutional uncertainty and the likely reduction in trade and financial flows between the United Kingdom and the rest of the European Union in the medium term could have negative macroeconomic consequences, particularly in the UK.

The USA, however, experienced the decrease in investments in the energy sector and the negative impact on exports due to the stronger US dollar.

The slowdown in China continues. In the first half of the year, the growth stabilized close to half the target of 6.5-7% for 2016 as a result of expansionary policies and strong credit growth.

Domestic consumption remains strong and bears witness to the gradual rotation of Chinese assets, which allows the industry to grow in the service sector.
India continues to move quickly. Great improvements in trade policies, effective interventions by the government raised the confidence about the economic outlook of the country.

Brazil remains in recession even if it seems to be close to a reversal following the loss of the main causes of the crisis: falling raw material prices and political uncertainty.
The Russian economy shows signs of stabilization following:

• the shocks caused by low oil prices;
• the imposition of sanctions;
• the public funds injected by the Government into the financial system.


What are the impacts on the foreign exchanges?
Following the US elections, the dollar strengthened against the major currencies. Against the euro, it reached its record high and the strengthening trend is very definite.

Euro/Yuan exchange rate

China’s central bank is willing to leave the yuan weak to help the Chinese economy and its exports.
The Chinese currency is at its lowest levels both against the Euro and the US Dollar and there are no signs of a turnaround.

Euro Rublo exchange rate

The price of copper soared to 5,619 Dollars per ton, increasing by +5.32% in one day after the speech of the new US president Donald Trump, who declared to heavily promote public investment in infrastructures.

Copper price usd/ton

What considerations can be drawn?

World growth in developed countries is not very encouraging. The US will implement an expansionary fiscal policy that aims to double the current growth. Monetary policy will also be accommodating. In this scenario, the US Dollar will remain strong but not too much as to disadvantage US exports. European economies that do not have the possibility to stimulate growth with greater investments will benefit from a weak Euro which favours exports. At the same time, they will have to review their purchase budget to take into account the rising raw material prices related to investment in infrastructure such as copper.

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