Martin Wolf on Global Economy in 2017

In this ten minute interview, Martin Wolf and Lionel Barber from the FT discuss prospects for the world economy.

2016 has been a year of political shocks which themselves can be seen as part of the sustained fall-out from the global financial crisis.

On China - The Chinese government can keep the system going as long as they can continue to print money and pay debt. The underlying growth dynamic for China is slowing.

On the Euro Zone - Terminally tepid growth would be a good outcome. There is a lot of economic and political risk especially with the fragility of the Italian economy and the French Presidential election. It is the politics that creates the economic risks.

On inflation - Unlikely to return in a serious way because there is still plenty of slack in the world economy and China will continue to slow. Countries with weaker currencies will see some extra inflationary pressure.

On the US economy - Can the US economy grow at more than 3%? Wolf argues that it is completely unrealistic that a 3-4% growth rate can be regarded as a sustainable trend growth rate for the US. It would take a huge surge in productivity and unemployment is already quite low.

On the stronger US dollar - This is a major problem for countries with large external debts and weak currencies. Expect to see a surge in bankruptcies in these countries as companies in particular find it hard to repay US dollar-denominated debt. China, Japan and the Euro Zone will tend to benefit from a period of US dollar strength.

On India - India should be able to grow around 7%. The de-monetisation of the currency looks like a mess but shouldn't do serious damage to their economy. India should be the fastest-growing big economy in the world in 2017.