World Economy

Populism is downside risk to global growth: Research

Fiscal reflation will dominate in 2017: Fitch Ratings

The election of Donald Trump as U.S. president has been a positive for stock markets and may increase economic growth, but the surge in populism in the West is a big problem, warn experts.

Fitch Ratings, in a report published today, revised its global growth forecasts upwards to 2.9 percent in 2017, partly as a result of fiscal easing under President-elect Trump and a recovery in U.S. investment.

But the credit rating agency also warned that there were large downside risks to the world economy as a result of the growth of populism and the possibility of the U.S. and China starting a trade or currency war.

"We're going to have less open economies; we're going to have trade barriers going up; I think Donald Trump is going to be looking at NAFTA, he's going to be looking at China very hard, and those were very clear parts of his campaign," Brian Coulton, head of global economics at Fitch Ratings, told CNBC's Squawk Box.

"The U.K., when it leaves the EU, is going to be a less open economy. Both those things are going to be negative for growth in the medium term," he said.

Coulton also discussed the impact of fiscal expansion under Donald Trump. U.S. stock markets rallied following Trump's election partly on hopes of inflation and Keynesian-like spending on infrastructure projects.

Marine Le Pen
Pascal Le Segretain | Getty Images

"The scale of his campaign proposals was enormous. According to one estimate, you're talking nearly 2 percent of GDP easing in 2017 alone. I don't think he can get that through. There are still quite a lot of fiscal conservatives within the Republicans."

Coulton believes many of the infrastructure projects proposed are not "shovel-ready" and will take some time to materialize.

On the other hand, Guillaume Touze, managing partner and CEO of Quadra Capital Partners, had a more optimistic view for 2017.

"Everybody speaks about Trump and populism and the Italian referendum coming up. We very much feel that these themes are already playing in the market and may be slightly overstated," Touze told CNBC.

"We would tend to believe that next year will bring some positive news. We feel that world growth probably could be around 3.5 percent versus 3 this year."

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