Global Economy in 2017: A Year Filled with Major Ambiguities

In the past decade, from the financial crisis of 2008 to today, global markets have never started the New Year so lively and hopeful. This enthusiastic atmosphere is surprising because significant ambiguities weigh heavily on the international relations system, and the foundations of what has gradually formed under the title of 'governance' of the global economy over the past seventy years are currently being questioned due to political events and their increasing complexities. The exuberance of Middle Eastern markets is struggling amidst the most dangerous tensions in contemporary history, terrorism continues to strike major cities around the world, the European Union is grappling with its most severe crisis since its inception, and the White House in Washington is preparing for the most significant political transformation in the years following World War II. Despite such an uncertain environment, global markets are passing by these events without concern and are focused on optimistic prospects: 1) The oil market, which ended the longest boom period in the first half of 2014, has gone through a severe recession over the past two and a half years and even experienced prices below thirty dollars per barrel. However, with the surprising agreement among OPEC member countries to reduce production levels last November and a second agreement reached in December among both OPEC and non-OPEC countries, the tide turned, and the path for rising oil prices was opened. The total reduction in production ceilings based on the first and second agreements is not more than about one million eight hundred thousand barrels per day, and few expect these agreements to be implemented. Nevertheless, the fact that oil-producing countries reached a joint decision (even if only on paper) amidst intense conflict was a driving factor that set oil prices on an upward trajectory. Most importantly, Saudi Arabia's flexibility towards Iran was significant. Despite a dangerous political rivalry, the two Middle Eastern powers came together to prevent a further drop in oil prices, recognizing Tehran's right to regain its pre-sanction share of the global oil market. Currently, the price of Brent crude oil has risen to nearly 56 dollars per barrel, and oil producers hope that the average price of this commodity in 2017 will be at least around sixty dollars per barrel. The agreements from last November and December regarding OPEC's production cuts appear shaky overall, and the production of shale oil in the United States looms over them like a Damoclean sword. However, in the early days of the New Year, it is evident that oil traders generally believe in the market's exit from recession, which is one of the factors contributing to the current enthusiasm in the global economy. 2) In the early days of the New Year, stock markets continue to move from record to record. Of course, 2016 was also a prosperous year for many stock exchanges, ending with a ten percent jump in the average global stock index over the past twelve months. Even the FTSE index in London had a very good year despite Brexit. In the early days of the New Year, celebrations continue in the largest stock markets in the world, and there are no signs of concern regarding the economic situation's shift under the influence of political worries. American shareholders seem to have forgotten the uncertainties arising from Donald Trump's election as president and prefer to focus on his promises regarding tax cuts and a trillion-dollar investment in infrastructure projects. Europeans, despite their numerous questions about the state of the European Union and its predominantly bleak outlook, prefer to think of good news, including the continued relatively favorable economic situation in Germany and the somewhat positive movements seen in France. 3) Critics of Barack Obama from various political spectrums both inside and outside the United States can criticize his record in various areas of domestic and foreign policy. However, there is no doubt that the first African American president of the United States, at the end of his eight-year term, leaves behind a solid economic foundation for his successor. Eight years ago, the crisis in the American banking system plunged the world into financial chaos. But the United States emerged from the crisis earlier than other economic powers, and today the Federal Reserve is the first central bank in the world preparing the ground for a return to normalcy, particularly through raising interest rates. American banks have also become a symbol of the country's power. It is worth noting that the market value of JPMorgan, the first banking giant in the United States, is alone equivalent to six of the top banks in the Eurozone. Meanwhile, the US dollar has also strengthened, leaving rival currencies, including the European euro and the Chinese yuan, far behind. Based on these fundamental data, the American economy, despite significant questions regarding future political developments in the country, looks confidently to the future and transmits this confidence to financial markets, even outside the United States. Major ambiguities However, what is happening in global financial markets does not necessarily reflect the realities of the world. Beyond the enthusiasm seen among financial players, one cannot overlook the worrying trends that weigh on economic 'governance' at the international level. This 'governance' emerged in 1944 during the famous Bretton Woods conference and was established on three main pillars: the International Monetary Fund, the World Bank, and GATT, which later transformed into the World Trade Organization. The governance that emerged from the Bretton Woods conference was born out of the power relations at the end of World War II. Today, this relationship has been disrupted, and new powers have emerged that demand their share in managing the global economy. For decades, it was the Western powers that defended the principle of free trade and the move towards 'globalization.' Today, following the emergence of new industrial powers in the world, several wealthy Western countries are increasingly turning to border-closing policies and calling for a confrontation with 'globalization.' Both in the United States and Europe, extreme right and left factions support the establishment of walls and the implementation of protective and supportive policies. This point requires further explanation: for a long period, the major industrial powers in the United States and Western Europe encouraged their large companies (which were referred to as multinational or transnational) to invest in the developing world and asked all countries to remove barriers to free trade in capital, goods, and services. Thanks to access to capital and Western markets, powers such as Japan, South Korea, Brazil, and China emerged on the international economic scene. In fact, it was the markets of the United States and Europe that provided the grounds for the rise of emerging powers in international trade. In exchange for this cooperation, Americans and Europeans benefited from the emergence of a very large market, especially in Asia. It is true that the Chinese, by exporting massive amounts of goods to the United States, captured a significant portion of that country's market. However, in return, the United States could not sell such a massive volume of goods arising from information and communication technologies worldwide without the help of Chinese labor. Today, it seems the situation has changed, and in Europe and the United States, there is a wide wave against the movement of goods, services, and capital. Donald Trump, the elected president of the United States, who will take office in the White House in about two weeks, has effectively questioned the process of 'globalization' of the economy. We will mention two clear examples in this regard: a) The management of US trade diplomacy is in the hands of someone appointed by the president as the representative of the United States in international trade negotiations. The person who is set to take this position, according to Mr. Trump's decision, is Robert Lighthizer, who is known for his staunch opposition to free trade and the process of 'globalization.' His mission is to limit US imports through the implementation of a strongly protective policy so that, as supporters of such policies believe, jobs that have fled the United States can return to the country. This individual, who opposes free trade, is also responsible for reviewing the United States' trade agreements with various countries and regions around the world. b) For about the past twenty-five years, Mexico has become a major investment center for American, European, and Asian automotive companies, and thousands of Mexicans work in businesses established by foreign investors. The elected president of the United States wants to put an end to this situation, particularly preventing the entry of cars produced with foreign investment in Mexico. Given this outlook, Ford has decided to implement its investment project, which was supposed to take place in Mexico, in Michigan. Thus, the United States, a long-time advocate of free trade in capital and goods in the world, is preparing for a one hundred eighty-degree turn in its international economic relations with the rise of Donald Trump. Already, all advocates of closing borders, including Marine Le Pen, the leader of the far-right National Front in France, have praised protective and supportive policies based on Mr. Trump's approach. The year 2017 begins in a new atmosphere where the rules of the game are still unclear. It can be confidently said that global markets, after passing through euphoria, will ask themselves where they are headed and how they will cope with the major ambiguities arising from geopolitical and geoeconomic changes in the world.