Goldman Sachs' chief economist warns of 3 key risks in 2017

Growth has finally started to pick up globally, but there are still key risks on the horizon in 2017 that could shatter the newfound optimism in the world economy, warns Goldman Sachs’s chief economist Jan Hatzius.

Speaking at conference in London on Monday, Hatzius noted that “there has been an impressive acceleration of growth since the summer,” taking the Wall Street bank’s global growth forecast to an above-consensus 3.6% for this year.

Hatzius, however, pointed to three major risks that could derail the upbeat outlook for the months ahead.

“Risk number one is associated with the transition to the Trump administration, a hard turn toward protectionism. That’s certainly something we got our eye on that I think is a downside risk to the global economy,” he said.

President-elect Donald Trump has already hinted at some aggressive trade tariffs, for example threatening Japanese car maker Toyota 7203, +0.74%   with a “big border tax” if it builds a plant in Mexico for cars to the U.S. market. In the same vein, Ford F, -1.40%  in a surprising turnaround last week said it’s canceled plans for a $1.6 billion Mexico plant after facing criticism from Trump for more than a year.

“Risk number two is European politics,” Hatzius said. “While Europe has clearly improved, there’s still some very significant problems, especially in the labor market of the southern European economies.”

The unemployment rate in Spain, for example, is still almost 20%, while around 12% of people are without a job in Italy. Some political analysts fear there will be snap elections in Italy this year after Matteo Renzi resigned in December after losing a referendum on constitutional reforms. Other major political events this year in Europe include elections in France and Germany, as well as Brexit negotiations between the U.K. and the European Union.

And finally, for Hatzius’s third key risk, he’s looking further east.

“China continues to see very rapid debt growth and increases in the debt-to-GDP ratio, so we will take a close look at signals from China. Especially as far as capital flows are concerned and this a major focus of our Asia economics team,”

We thank Goldman Sach's Cheif Economist Jan Hatzius for this article