ravi menon : global economic outlook - renewed optimism, higher uncertainty speech by mr ravi menon, managing director of the monetary authority of singapore, at the ubs'wealth insights conference, singapore, 16 january 2017. * * * ladies and gentlemen, good morning. the global economy in 2016 – resilient but uninspiring 2016 was an eventful year for the global economy. if you recall, we began the year with anxiety over china ’ s financial markets but breathed easier over the course of the year as china steadied its economy and avoided the hard landing feared by many. we saw economic momentum in the us slip, and then pick up towards the end of the year, which also saw the second rate hike by the fed in 10 years and an unexpected presidential election outcome. the eu economy was stirred but not shaken by the shock of the brexit vote in june, with accommodative monetary policy providing support while domestic demand gradually improved. japan saw further innovations in monetary easing – with negative interest rates and yield curve control – with some but not decisive improvement in growth outcomes. in the asean economies, growth was respectable but below potential, as a pick - up in private consumption was offset by weaker investment and exports. overall, i would say the global economy in 2016 was resilient but uninspiring. economic growth was sustained in the face of shocks but remains sub - par. global gdp growth has averaged between 3. 0 and 3. 5 % – a sub - trend outcome that we have not been able to break out of since 2011. this is significantly lower than the average of 3. 8 % that we witnessed before the global financial crisis, between 1990 and 2007. there are some broad themes that have shaped economic outcomes during the last five years. in the advanced economies, there are accommodative monetary policies, fiscal consolidation, and deleveraging. in the emerging economies – a shift toward domestic demand, credit expansion, and a buildup in debt. in both advanced and emerging economies, we have seen slower growth in the key drivers of long - term prosperity – namely trade, investment, and productivity. everywhere, the pace of structural reforms has been slow. outlook for 2017 – renewed optimism, higher uncertainty what does 2017 hold for the global economy? let us consider first what financial markets are saying. since late last year, the markets have been pricing in higher growth, higher inflation, and higher interest rates. 1 / 7 bis central bankers

' speeches long - term bond yields have risen sharply in the advanced economies. equity prices have surged. this reflation story has been particularly accentuated in us stock and fixed income markets. reflecting this, the us dollar has appreciated sharply, rising to its strongest level against the major currencies since 2003. the market narrative goes something like this : the new administration in the us will inject a substantial fiscal stimulus – based on reduced corporate taxes and higher infrastructure spending. there will be significant deregulation of the economy – in key sectors like financial services, healthcare, and energy – unleashing animal spirits and new investment. the disinflationary drags from oil and commodity prices will fade and lift producer prices while a tightening labour market will feed faster wage increases. in response to higher growth and higher inflation, the us fed will hike interest rates faster than previously forecast. the us dollar will strengthen against most major currencies. the most recent data give some support to the reflation story. the oecd ’ s monthly leading indicators for october show signs of rising growth momentum – not just in the us but in other advanced economies as well. we are seeing an incipient upswing in the global manufacturing cycle. inventories have been drawn down significantly. purchasing managers ’ indices have recorded sharp improvements in many countries. but how realistic or sustainable is the growth resurgence scenario? the broad elements appear probable – there are indeed grounds for some optimism. but there is considerable uncertainty over the details, and there are several risks on the horizon. the market ’ s exuberance in recent months does not seem to have accounted for these uncertainties and risks. perhaps realising this, the market has begun to retrace some of its steps in more recent weeks. so, instead of providing forecasts – a risky enterprise that i will leave to the expert speakers at this conference – let me set out what i think will be the key driving forces for the global economic outlook and examine their implications : first, fiscal policy is on the rise, chiefly in the us but also in the other major advanced economies. second, monetary dominance is giving way to monetary divergence and financial conditions are tightening globally. third, the challenge of balancing growth and stability will become more acute in china and emerging asia. fourth, a rise in trade protectionism and, more broadly, a pushback against globalisation, can seriously undermine growth prospects not just in 2017 but also over the medium - term. the rise of fiscal