AT the start of 2016, most investors would have expected that if the UK voted to leave the EU, the US elected Donald Trump as its president, and the Italians used a constitutional referendum to vote their Prime Minister out of office, then investments would have a bad year.

But, as is often the case, the economic implications of these events were exaggerated or simply misunderstood.

Oil boosted growth in 2016

This time last year, the oil price was in the latter stages of a precipitous decline – a fall which we confidently assured investors would be good for the global economy.

Oil has remarkable breadth as a cost to households, businesses and governments, either directly or as an input into the pricing of other forms of energy. Meanwhile, the vendors of this key commodity are a very narrow group. The price decline therefore served as a global tax cut.

The eventual pick-up in demand, driven by low energy prices, looks to have been a major driver of 2016’s economic performance.

More jobs, higher wages

The UK economy generated around half a million new jobs during 2016, the third year in a row it produced so much employment.

Wages have also grown in real terms, thanks in large part to those falls in energy prices but aided by an increase in wage rates.

This implies that tempting people into the workforce requires higher wages, so pushing wage growth higher.

The UK is also close to full employment. The Eurozone, however, still has high levels of unemployment - some 9.8 per cent of the workforce, slightly below the 10.1 per cent level at the euro’s inception in 1999.

Poll shocks in 2017?

The Eurozone briefly seized the focus at the end of 2016 when Italy’s failed referendum on constitutional reform led to the resignation of the Prime Minister.

There will be more noteworthy votes in Europe in 2017, starting with Dutch elections on the fateful Ides March 15.

The polls suggest a win for Geert Wilders’ Eurosceptic Freedom Party - although with an expected third of the vote it would not command a legislative majority.

Then there are the French presidential elections over two weekends in April and May.

Marine Le Pen, leader of France’s Front National, could top the first round of voting, but she is more likely to be the runner-up.

And the second round run-off should see her comfortably beaten by the centre-right candidate François Fillon.

That said, with Donald Trump defying seemingly impossible odds to win the US presidential election, further shock results cannot be ruled out.

Opportunities for investors in Europe?

Investors have been fleeing from European assets since the Brexit decision cast its shadow over the region.

Investors fear 2017 will be marked by similar risks to 2016 with a rising tide of populism potentially threatening the euro’s existence.

At Brewin, we end the year with a neutral position on Europe, but it is “walls of worries” such as those currently confronting Europe, which tend to provide opportunities for investors - so we may have to revisit this view with a more bullish tone in the future.

Will the pound recover?

Following the UK’s decision to leave the EU the pound plummeted by around 18 per cent on a trade weighted basis.

This has been a boon for stock market investors – particularly those with overseas holdings or larger UK stocks that are international by nature as their revenues are typically earned in dollars, euros or yen.

A major investment theme for 2016 and 2017 is therefore the fall - and potential recovery - of the British pound.

The general trend of central banks is towards the tentative removal of stimulus but in the UK the Bank of England will have a higher hurdle than most, because the UK ends 2016 with reduced job creation and the Bank is worried about how the economy will perform once the government triggers Article 50 to start negotiations to leave the EU.

Inflation to touch three per cent in 2017

Inflation is picking up, albeit from extreme lows.

The virtuous oil price falls of last year have created what economists call “base effects” for inflation, and with the recent deal on production cuts by oil-producing countries, we expect to see inflation brushing three per cent during 2017.

This is one way in which the story for 2017 doesn’t seem quite as bright as it was in 2016.

Incomes will have to grow more to overcome the effects of inflation than they did when oil was in freefall.