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[OPINION] The risks to global growth forecasts

Each year, investment managers look into the crystal ball to try and forecast what the future holds so we can optimise expected returns from the investments we make.

One of the forecasts is global economic growth, which is a key driver for corporate earnings growth which in turn drives equity markets performance as well as the valuations of other financial and real assets. So far, the consensus is a more optimistic growth picture and an acceleration into 2018 and beyond.

Think again because there are risks to this view.

The reality is, more than ever before, geopolitical risks have risen and they are likely to have a more meaningful impact on economies from 2017 and beyond. The mitigation of geopolitical risks is difficult due to their inherent unpredictability. And this uncertainty is a breeding ground for jittery markets so brace yourselves for volatility.

During a recent Bloomberg interview, South African central bank governor Lesetja Kganyago outlined protectionism as one of the significant risk to global economic growth, especially to emerging markets.

Protectionism largely emanates from the rise of nationalism. If such a scenario pans out, in his words …”Global trade declines and when it declines you are going to have a significant impact on the livelihood of the majority of people in the emerging economies”.

We have witnessed the rise of nationalism following Brexit referendum results and the US presidential election. The potential spillover effect of these occurrences threaten globalisation, the very foundation of sustainable global economic growth. The negative criticism of globalisation in its current form, however, is the lack of inclusivity in enjoying its benefits.

Professor Joseph E Stiglitz in his book Globalisation and its Discontents wrote “…decisions were often made because of ideology and politics. As a result many wrong-headed actions were taken, ones that did not solve the problem at hand but that fit with the interests or beliefs of the people in power.”

However, Kofi Annan, former Secretary General of the United Nations, noted: “It has been said that arguing against globalisation is like arguing against the laws of gravity”.

We can therefore expect the globalisation trend to continue, but perhaps be hindered or stalled by the current political environment. As an investment manager, these uncertainties need to be factored into portfolios.

Lesiba Ledwaba is a fund manager at Ashburton Investments.

For more news, analysis and insights on Davos 2017 go to EWN’s WEF portal in partnership with Ashburton Investments.