Prospect of trade war, Europe woes cast shadow on global economy 

This is because of the policy of the elected US
President that aimingThe president-elect’s proposals for tax cuts, deregulation and higher investment in the country's infrastructure are viewed as feasible politically with the Republican Party holding a majority in both Houses.
 Yields in the bond market, which have been very low since the financial crisis in 2008, also rose simply because interest rates and inflation are expected to rise. In addition, Trump’s administration will likely have a higher budget deficit due to its policy of reducing taxes. As a result, bond prices have dropped considerably in recent months.
 The Federal Reserve announced a policy rate hike in mid-December as anticipated by the market and its plan to raise interest rates three more times next year is seen as a clear signal of an uptrend in interest rates. According to Bloomberg, the yield on US government bonds with a maturity of 10 years has risen to more than 2.5 per cent, which is equivalent to a reduction of 5.4 per cent in prices. The price of government bonds with a maturity of 30 years has dropped more than 10 per cent. As a result, holders of bonds, which are considered low-risk assets, have suffered an unexpected loss for the past couple of months.
However, there are other issues creating uncertainty that can affect global economic growth. First, growth in the Chinese economy is likely to be lower than in the past. This is because China has to strike a better balance between economic growth and credit growth under the current situation of high capital outflows and a high ratio of debt to GDP. The new credit, with rising financing costs, must be used by productively by companies, instead of being diverted to speculative activities. Hence, it will be interesting to see how the expected trade war between China and the US will affect the balance between those two goals.
Second, there are concerns about the slow recovery of the European economy and its debt crisis. In the case of Greece, a ratio of debt to GDP as high as 180 per cent is a level that many experts believe is too great for the government to overcome if the country’s creditors refuse to take a reasonable debt haircut.
There are also worries about the slow recovery of the European economy. Despite the recent European Central Bank announcement of an extension period for its monetary easing until December 2017, the ECB also cut the size of bond purchases from 80 billion euros (Bt3 trillion) per month to 60 billion euros. This clearly reflects the limitations of the ECB in stimulating the economy after that. 
The slow recovery of the European economy will add to the risks facing some financial institutions such as the commercial banks in Italy. The sluggish economy could also disrupt the continuity of the political system in some countries when it is combined with other problems, such as the issue of immigrants. This could help the rise of the populist parties that are opposed to further integration in the EU and significantly affect the results of national elections in France and Germany next year. That could mean a change of policy direction could occur and, inevitably, have an impact on the volatility of the European economy and the world economy eventually.
 
Professor Arayah Preechametta is a lecturer in the Faculty of Economics, Thammasat University.