It’s the New Year and many of us are re-examining our goals. What do we want to accomplish in 2017 and how will we get there? More specifically, how will we meet our financial goals and what hurdles are we facing this year? It’s 2017 now and it feels like we are facing an entirely new economy. Fortunately, economic indicators are showing a low probability of recession in 2017. The favorable regulatory and tax environment coming early this year may help accelerate GDP growth. On the other hand, we face global instability, successive interest rate hikes, and protectionist trade policies.
Image by [cnsnews.com].
Thankfully, economists are predicting GDP to expand by 2.5-4% in 2017, far above the 2.1% 7-year average. This estimate is driven by a mix of domestic manufacturing, capital expenditures, government spending, and pro-growth regulatory policy. Overall, the incoming administration aims to lower corporate tax rates to 15%, reduce regulation, spend $1 trillion on infrastructure, and repatriate resources from overseas. However, such policies may lead to overconfidence, over borrowing, and overspending.
We are beginning to see this overconfidence manifest in inflated stock prices (see above). The sustainability of these prices will largely hinge on whether or not Republicans deliver on pro-growth campaign promises. Another cause for concern is the likelihood of another three interest rate hikes in 2017. If the Fed continues to raise rates it will become more expensive to borrow thus stagnating growth. Three increases could account for about 75 basis points or a 0.75% hike. Another major concern is China. If China’s growth slows it will negatively affect U.S. exports and drag down our economy.
In summation, we are looking at strong short term growth due to a slew of pro-business policies and government spending. The sustainability of this growth will depend largely on our overconfidence. If the national debt continues to soar and consumers continue to over borrow we could be looking at hard times. The years 1929 (credit) and 2008 (subprime mortgages) can be both defined by the word “overconfidence”. We also have to be wary of trade partners like China and the global instability around the world. Despite a few concerns 2017 looks great and we should look forward to a prosperous year!