The most likely catalyst for a reversal in global sentiment was the "Trump effect" — a United States President Donald Trump-led switch to isolationist and protectionist US policies resulting in stalled global trade or even a global trade war.
So far, the signs were not good, but there were offsetting positive factors in play such as planned global fiscal stimulus and lifting commodity prices.
"Of course, time will tell as to whether these other factors can offset Trump’s best — or should that be worst — efforts."
After an initial bullish take on Mr Trump’s election triumph, financial markets had started to fret about the potential for global political and economic fallout, Mr Tuffley said.
In his first week in office, Mr Trump promptly withdrew the US from the Trans Pacific Partnership (TPP) and signalled his intention to renegotiate the North American Free Trade Agreement (Nafta).
Reuters reported Mexico expected to begin formal talks from the beginning of May on renegotiating Nafta following a 90-day consultation with the private sector.
Mr Trump vowed to scuttle Nafta, which also includes Canada, if he cannot recast it to benefit US interests, raising the risk of a major economic shock for Mexico. US food producers and shippers were also concerned about losing business.
Mr Tuffley said while the moves were not unexpected given his campaign stance, the immigration bans surprised many with their swift and blunt implementation.
While Mr Trump’s early announcements had been controversial, his fiscal policy plans should eventually stimulate US and global growth.
By 2018, the OECD estimated the planned stimulus could add 0.3% to global growth. Ongoing Chinese and euro zone stimulus could have a similar impact on global growth over the same period, he said.
Mr Trump aside, the US economy strengthened over 2016. With that in mind, the Federal Reserve lifted its benchmark rate in December, signalling incremental hikes to come.
"Whether the ‘Trump effect’ is enough to derail the Fed’s planned hikes remain to be seen. At this juncture, Trump’s announcements have offset the impact of the Fed’s outlook on currency markets as the US dollar is weaker since Trump’s inauguration."
Chinese growth ended the year on a firm footing, Mr Tuffley said. Fourth-quarter growth accelerated a touch to 6.8% in annual terms, compared with 6.7% over the first three quarters of the year.This year, China was expected to grow by a similarly strong 6.8%, although that depended on a recovery in exports.
Unsurprisingly, the export improvement was subject to the broader improvement in global growth as well as subject to any Trump-Sino trade war risks.
However, there was little appetite among Chinese politicians for economic weakness in the lead-up to the National Congress later this year, he said.
The Australian economy went backwards in the three months to September, although the 0.5% drop in gross domestic product (GDP) looked like a pothole rather than the start of something more sinister.
Australia’s resource export prices spiked in December and incomes were likely to improve as a result over the year. With incomes likely to improve, the ASB expected the Reserve Bank of Australia to leave the cash rate at 1.5% in 2017.
From a New Zealand perspective, Mr Tuffley expected the Australian labour market to remain "relatively weak" and for that to support New Zealand’s historically strong net migration position with Australia.
A hard and long Brexit process looked the most likely scenario for the United Kingdom. That, along with a weak euro zone economy, including financial institutions, offered little hope of a material change in either British or European economic fortunes over 2017 or 2018.
"Overall, we continue to expect modest global growth over 2017 and 2018. Growth has the potential to accelerate a touch from 2016 levels and to support New Zealand’s export outlook, particularly if the rebound in global commodity prices stick."
Risks were likely to wax and wane, Mr Tuffley said. In particular, fallout from the "Trump effect" was likely to dominate the first quarter of the year as Mr Trump made a policy splash in his first 100 days as president.
Other risks such as a hard Brexit, weak European growth and ongoing Chinese growth concerns remained very much in play, he said.
