Stronger than expected economic growth in 2017 bolstered profits, reduced unemployment, and helped slow gains by populist leaders. But financial institutions now face mounting risks from potential asset-price bubbles and a fast-approaching Brexit deadline. Most importantly, we see large financial firms focusing on scenario planning, as 2018 could be a volatile year. How can firms stay vigilant and nimble to seize opportunities and manage risks?
A look back
Upside surprise. Global economic growth beat many expectations in 2017. Global trade, investment, and industrial production rose, and growth hit an impressive 3.6%. The US economy strengthened too, expanding at a 2.2% pace. Meanwhile, investors seeking yield bid up prices across asset classes, raising the risk of market instability. Elsewhere, China’s GDP growth has flattened, and the foundation for its boom remains shaky. Beijing needs to rein in credit growth and curb rising property values. The world is watching, as China remains the biggest engine for global growth.
Crumbs from the Fed. The Fed raised rates in 2017 and signaled more rate hikes to come in 2018. It also began paring its US$4.2 trillion balance sheet, a main tool for stimulus. Albeit with slower timelines, there have been similar indications from both the Bank of England (BoE) and the European Central Bank (ECB). The unprecedented period of low interest rates seems to be at an end.