In 2016, with every political incident, fiscal stimulus was gradually extended and central banks reaffirmed their willingness to provide monetary support. This will allow the markets to continue to benefit from the clearest economic recovery since the great financial crisis. The US business cycle is already well advanced, but the Trump effect could make it last even longer. Europe and Japan have lagged behind the international cycle, leaving them with significant growth potential. Anglo-Saxon investors, however, remain wary of Europe, just in case. The political risk in France is estimated to be much higher than at the beginning of 1981 when the presidential elections were unexpectedly won by François Mitterrand. As a result of these fears, European markets continue to underperform and the risk premium of French government bonds has started to rise. In addition, technical market indicators are showing the first signs of weakening. However, thanks to the real economic situation, equity markets are justifiably continuing to rise, albeit with difficulty in Europe due to the many concerns. Perhaps it is the uplifting conditions and their fascination with the political agenda that the markets are ignoring one of the clearest risks of 2017: rising inflationary pressures (see our monthly report, “2017: Be Careful What You Wish For,” January 2017 ). By the way, you can visit this site to find car accident lawyer Los Angeles.

The economy is picking up

The Donald Trump phenomenon continues to amaze everyone. However, the risk of his unpredictability is limited, especially because of his working method, which is much more efficient than it appears. By sending short, superficial messages into the world every day, his communication becomes particularly elastic and his words are interpreted less and less literally. In addition, Donald Trump’s inexperience in key policy areas forces him to surround himself with experienced experts, just like Ronald Reagan did at the time. There is no doubt about his economic vision either. Donald Trump follows a fairly primitive but cohesive mercantilist line, with the state being given a decisive role in supporting the US economy and rebalancing the trade balance. The common thread in the economic measures is therefore quite clear, both for the United States and for the country’s trading partners. Inevitably, the scale of the measures will be tempered by Congress which is very conservative and can veto key fiscal and budgetary matters. The American population is deeply divided, but at the same time most Americans are enthusiastic about the economic prospects: consumer confidence has risen sharply since November 9 last year. More importantly for business investment, the confidence of medium-sized companies has risen sharply since the election and is now at its highest level since 2004. The renewed enthusiasm was boosted by US corporate results, which showed an average growth of 5% in the last quarter of 2016, exceeding analyst expectations in two-thirds of cases. It is also noteworthy that the major political events scheduled for 2017 in Europe are not preventing the economic recovery: the eurozone PMI index once again disproved the most pessimistic expectations by rising 1.6 points in February to 56, the highest level since April 2011. Analysts continue to raise their expectations for 2017 business results and are currently forecasting average growth of 15%. Although the political uncertainty is not making the European markets take full advantage of the economic recovery, a smooth course of the upcoming political events could lead to a significant catch-up of the stock markets and the euro (especially if the elections are won with sound economic programs).

Populist Threat

We should not underestimate the European electoral risk. It is hard to imagine that the populist wind that has been blowing through politics worldwide for more than a year would magically stop at the borders of the eurozone. The highly unequal distribution of the benefits of globalization in developed countries has paved the way for nationalist sentiments, which are exacerbated by migratory flows. If national identity and protectionist reflexes become the main electoral themes, the assessment of the economic impact of election manifestos will fade into the background, opening the door to demagogic proposals that will affect everyone’s prosperity.

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