(Yicai Global) Jan. 19 -- This year, the global economy may witness its first growth acceleration in five years, Axel Weber, chairman of UBS Group AG [NYSE:UBS] said in an exclusive interview with Yicai Global. Despite political risks, chances are that global economic growth may surprise everyone in 2017, he said.
Politics is the biggest risk factor in finance today. Brexit and a shift in US policies after President-elect Donald Trump takes office will bring uncertainties to major economies and the world. Elections in major European countries including the Netherlands, Germany and France, will cause political changes and uncertainty in Europe, Weber said. Many structural issues, such as excessive debt, remain unsolved in the world.
However, he suggested, "We may see relatively strong economic growth driven by a strong US economy. Normalization of the dollar may continue, providing support to higher returns on investment in the financial market. I'm optimistic about economic growth this year."
Weber predicts the US Federal Reserve will raise interest rates further this year, and the monetary policy in the US will gradually tighten in 2017 and 2018. "Our projection is that the Fed will hike interest rates by 50-75 basis points by year-end, and by another 50-75 basis points by the end of 2018."
This means that interest rates in the US may rise up to two percent in the next couple of years causing short- and long-term rate increases.
Weber thinks the Chinese authorities will adopt a mixed monetary policy this year, but will not change interest rates in 2017 or 2018. "Keeping the monetary policy as it is and using capital controls to keep the opening up in an orderly fashion is an appropriate choice," Weber reportedly said at a UBS conference in Shanghai.
The yuan will still face downside pressure against the dollar this year. The real estate market in China will continue to adjust, and property prices will remain under short-term pressure.
Many countries are excessively reliant on monetary policy, with fiscal and structural policies playing a minor role, he noted. In fact, fiscal policy can play a bigger part in handling and preventing crises. Therefore, more attention should be focused on fiscal policies supplemented by monetary stimulus, while structural policies are monitored.