Nariman Behravesh is the chief economist at IHS, a consultancy that advises clients on current events around the world. On the sidelines of the World Economic Forum, he gave FP his views about the most pressing financial issues of the day — and the economic impact of Donald Trump emerging as the GOP’s standard-bearer in the 2016 elections.
FP: Your growth projections were below the International Monetary Fund. (The bank predicted global expansion of 3.4 percent in 2016. Behravesh believes growth will be between 2.5 and 3 percent this year). What are you seeing that they’re not?
Behravesh: We are somewhat more pessimistic on China, Russia and Brazil. Also we have lowered our U.S. forecast a little because of the latest [financial] data.
FP: What’s your outlook for China? Are markets overreacting, especially given the sell-off to start the year?
Behravesh: China’s growth will slow to around 6.3 percent this year from 6.9 percent last year. China’s situation can best be described as a nasty cocktail of structural problems like high levels of debt and industrial overcapacity, slowing growth, and a chaotic policy response to the stock market crash and currency pressures.
FP: What do you think the lifting of sanctions against Tehran will do for Iran’s economy?
Behravesh: Iran’s economy will benefit from the lifting of sanctions — it can probably grow around 4 percent by next year. Expected oil exports from Iran have already depressed oil prices. But unless Iranian production can ramp up quickly, further downward pressure from Iranian oil will be limited.
FP: Can the U.S. sustain economic growth despite challenges from China and slowdowns in emerging markets?
Behravesh: Domestic demand — including consumer spending and housing — accounts for about 87 percent of U.S. GDP, so the exposure to exports is low. Specifically exports to China are only 1 percent of GDP to China and about 4 percent to all emerging markets.
FP: Will the Trans-Pacific Partnership be done before Obama leaves office?
Behravesh: TPP will be priority for the Obama administration. There is support for it on both sides of the aisle. However, if Trump is the Republican nominee, then the chances of passage will be lower.
FP: Anything else we should be paying attention to this year?
Behravesh: China’s currency is under intense downward pressure because of massive capital flight — around $1 trillion over the past six months. So far, China has tried to offset this by running down its reserves. But what will it do next? Run down its reserves more — there are limits — re-impose capital controls, reverse recent financial markets liberalization, or let the currency [float]. The last would be a disaster for China and world economy, so some combination of the first two is more likely. We need to keep an eye on this.
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