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Last Updated : Jan 21, 2017 03:44 PM IST | Source: CNBC-TV18

Currency volatility will be a key risk in 2017: Deutsche Bank

Global economy is on firmer ground and Dixit Joshi of Deutsche Bank expects GDP growth of 3.4 percent in 2017. However, currency volatility will be a key risk, Joshi told CNBC-TV18‘s Shereen Bhan at the Davos Summit.

Global economy is on firmer ground and Dixit Joshi of Deutsche Bank expects GDP growth of 3.4 percent in 2017. However, currency volatility will be a key risk, Joshi told CNBC-TV18’s Shereen Bhan at the Davos Summit.

Joshi expects the US dollar to continue on a positive, albeit somewhat bumpy, path. Potentially higher inflation and good growth in the US will help underpin the dollar, he said. While this could weigh on emerging markets in the short run, he believes they will recover soon as the EMs are in a much better position now than they were few years ago.

India has seen capital flows migrating towards areas of better opportunity, but there is recognition that demonetisation and negative credit impasse from that in the short run will dissipate soon. Growth will return and lead to money starting to flow back, he said.

Below is the verbatim transcript of Dixit Joshi's interview to Shereen Bhan on CNBC-TV18.

Q: What do you think about global economy?

A: Global economy is on firmer ground. If we are expecting around 3.4 percent of GDP growth this year, we are in a good position. That said, you do have a number of events. Clearly, the path of Brexit is still uncertain. We have the invocation of Article 50, the path to be decided whether the transition period accompanies that or not and how that plays out. That potentially continues to create uncertainty for us.

Q: The fact that there is at least certainty that Theresa May is not interested in single market, she has made that amply clear does that now scare capital away from the UK even further?

A: It all depends on exactly what gets negotiated during the next two years or having a suitable transition period and that is why I think it is quite hard to take a view right now without letting that play out and hence that will continue to weigh on the markets and for some anxiety until we see where we land.

Q: What is the outlook both as far as US equities as well as the dollar is concerned?

A: We have seen a retracement on dollar recently. I would say we are seeing a lot of noise in the dollar but it does feel like the dollar uptrend will continue over the medium-term. Higher rates, potentially higher inflation, good GDP growth out of the US will all have underpinned the dollar.

What is interesting is just the global adjustments that will take place as a consequence. Emerging markets clearly is one where in the short run this does weigh on but not in the medium-term and long-term because emerging markets are much better positioned now than they were a few years ago.

Q: Given the global context then what is the outlook in terms of FII inflows into markets like India specifically?

A: We have seen reasonable amount of outflows as we have seen the Indian equity market over the last couple of months and that isn’t entirely surprising when you look at great prospects that we have had elsewhere in places like the United States, you look at the Footsie here as a consequences of the pound and how well the Footsie has done so we have seen some capital flow migrate towards the areas of opportunity. Equally there is a recognition that demonetisation and the negative credit impulse from that in the short-run, once that dissipates, I think good growth there will lead to money starting to flow back.

Q: Would you think that currency volatility will be one of the key risks in 2017?

A: No doubt. I think with the number of elections that we have in Europe as an example. We have the Dutch election, we have the German election, Italy election, French election, Brexit still playing out there, it will left to be seen as to what the dollar part looks like and no doubt positive but somewhat bumpy. So I think this year will be characterised by more volatility.


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First Published on Jan 20, 2017 09:46 am
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