PwC’s economic predictions for 2017

Published at 09:36 AM on 21 December 2016

2016 has been an interesting year. The EU referendum and US presidential election delivered largely unexpected outcomes, UK unemployment continued to fall, sterling weakened, inflation hit a 2-year high, while interest rates remained unmoved.

Looking ahead to the UK economy in 2017, the likely triggering of Article 50 will be contextualised by a series of European elections and the possible spectre of another Scottish independence referendum. In what promises to be another eventful year, John Hawksworth, chief economist at PwC, comments on:

UK GDP

“The UK led the G7 rankings in 2016 with GDP growth of around 2%, but is expected to fall back to a middling position in 2017 as growth slows to around 1-1.5%. This reflect the gradual drag on business investment from Brexit-related uncertainty, as well as the squeeze on real household spending power from the weaker pound.”

UK sectors

“We are not predicting a recession and parts of the UK economy should remain relatively strong, particularly in the consumer services, tourism and technology sectors. But manufacturing and construction may continue to struggle and the City could suffer some loss of business to other EU countries due to the anticipated impact of Brexit.”

Inflation

“We expect a key feature of 2017 to be a re-emergence of inflation, which we expect to rise to around 2.5-3% by the end of the year, squeezing real earnings growth. This pay restraint should, however, also help to avoid any significant rise in unemployment.”

Monetary policy

“We expect the Bank of England to keep interest rates on hold for at least the first half of 2017, waiting to see how the economic impact of Brexit unfolds. After boosting public investment in his Autumn Statement, the Chancellor is also likely to be in ‘wait and see’ mode in what could be a relatively boring Budget in March.”

Key projections for the UK economy

 

2016

2017

Real GDP growth

2.0%

1.2%

Consumer spending growth

2.9%

2.2%

Inflation (CPI, Q4)

1.2%

2.7%

 

Source: PwC main scenario projections

House prices

“The housing market has shown signs of cooling recently, particularly in central London, and we expect average UK house price inflation to moderate to around 2-5% in 2017.”

Trump’s presidency

“If President Trump can get a significant fiscal expansion through Congress, then there could be some beneficial knock-on effect on UK exports to the US in late 2017 and during 2018. However, this could be outweighed in the longer term by any moves to greater protectionism if President Trump follows through on his campaign promises in this area.”

Barret Kupelian, senior economist at PwC, comments on prospects for the global economy next year:

World trade

“In the absence of the Trans-Pacific Partnership and Trade and Investment Partnership being agreed, we expect world trade to grow slower than global output for the third consecutive year. The resurgence of economic nationalism in some parts of the world means World Trade Organisation rules will be put to the test. The world’s biggest bilateral trade route (US-China) is likely to come under pressure.”

US growth

“In our main scenario, we expect the US to grow by 2.2%—the fastest in the G7— on the back of strong job creation and household consumption. It could surprise on the upside if the new administration lowers taxes and pursues plans to boost spending on infrastructure. We expect the US will contribute around 70% of G7 growth in our main scenario, despite making up half of G7 GDP in absolute terms.”

Asian economies

“Asia will remain the fastest growing region of the world, but the spotlight will shift away from China to India and Indonesia in 2017. We think Indonesia is on course to join the elite ‘trillion dollar’ economy club next year. In comparison, we project Chinese GDP to grow at around 6% per annum. Meanwhile, India’s contribution to world GDP growth could reach almost 17%.”

Eurozone

“In the Eurozone, we expect the ‘peripheral’ economies to grow faster than the ‘core’ for the fourth consecutive year. Irish GDP growth is expected to be the leader of the peripheral pack, expanding by more than 3% per annum while France and the Netherlands lead the core at around 1.5%. On the jobs front, employment in the core is expected to hit an all-time high of around 97 million. But this will be outperformed by the periphery, who are expected to create around 100,000 more jobs than the core.”

Ends.

Notes for editors.

1.      For further information, please see our latest UK Economic Outlook and Global Economy Watch: http://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook.html http://www.pwc.com/gx/en/issues/economy/global-economy-watch.html

For further information please contact Tilly Parke: tilly.parke@pwc.com / +44 20 7804 8761


Twitter
LinkedIn
Facebook
Google+

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. © 2016 PwC. All rights reserved

« London Market softening to continue in 2017 – PwC’s 2017 London Market outlook | Homepage | Rapid urbanisation – unlocking the power of cities for sustainable development »

  • Contact us
  • +44 (0) 20 7213 1768

Specific and out of hours contacts