'Policy uncertainty' tops SocGen list of potential black swans
"Policy uncertainty remains the most significant risk to our outlook," according to a new report on black swan events that should give cause the most concern from strategists at Societe Generale (SocGen). While the bank predicts growth of 2.2% for the US in 2017 and that the Federal Government will hike the key interest rate to 1.25%, it also expects the US to see a downturn in H2 2018. The report forecasts oil priced at $60pb by the end of 2017. SocGen's top economic risks and their likelihood of occurring are noted as: 1) Greater drag from policy uncertainty headwind (30%) 2) China hard landing risks have eased (20%) 3) Market repricing of central bank tightening and inflation (20%) 4) Consumers opt to save more (10%). 

Strategists at Societe Generale have issued a new report detailing their forecasts for the global economy and their list of so-called "black swan" events.



A "black swan" event is a metaphor used by the investment community to describe an event that comes as a surprise, such as the crash of the U.S. housing market in 2008 or the Japanese earthquake of 2011. In the French bank's latest global economic outlook, SocGen said that various issues constituted downside risks to the global growth outlook, including the "drag from U.S. and European policy uncertainty" (still the highest risk according to SocGen), a hard landing in China, a sharp market repricing and consumers opting to save, rather than spend, more.

"Policy uncertainty remains the most significant risk to our outlook," the report, released on Tuesday, said.

"We see two dimensions to this risk. First, there is the slow moving drag that comes from the uncertainty itself holding back notably investment and hiring decisions and structural reform efforts. Second, there is the risk of an adverse outcome triggering financial instability. In the case of Brexit, the former remains significant while the latter proved short-lived on the back of an aggressive response from the BOE (Bank of England)."

Summarizing its global economic outlook, SocGen predicted that the U.S. would grow 2.2 percent in 2017, slightly above a consensus forecast of 2.3 percent. It believed that by end 2017, the Federal Reserve would have hiked the key interest rate to 1.25 percent.

However, SocGen believed that the U.S. could see a downturn in the second half of 2018: "Critical to this view is that we have not assumed any large scale fiscal stimulus."

Top economic risks—and how likely they are:

1. Greater drag from the policy uncertainty headwind: 30%

2. China hard landing risks have eased: 20%

3. Market repricing of central bank tightening and inflation: 20%

4. Consumers opt to save more: 10%