Global Economic Outlook 2016

With the world still seeming to recover from the last Great Depression, concerns regarding the global economy and its impact closer to home, in India, only seem appropriate. Bidding adieu to 2015, Managing Director of the International Monetary Fund (IMF), Christine Lagarde, ominously stated that global economic growth was expected to be disappointing in 2016, in a guest article published on December 31, 2015, in Handelsblatt, a German newspaper.

Expressing concern regarding medium-term prospects, Ms Lagarde went on to say that with the economic slowdown in China and the expectations of rising interest rates in the US, uncertainty has risen, as has the risk of economic vulnerability across the world. And then there is global trade, which has also slowed substantially, while declining raw material prices have been impacting several economies, especially the emerging markets.

But can it be all that bad? Something tells me that there is more to look forward to in 2016 than the bears would have us believe.

World Economic Outlook

According to an article on Global Economic Forecast 2016-2017, published by Forbes in November 2015, “The global economy is poised for economic growth comparable to recent years’ performance, but with a somewhat different texture. European countries will do a bit better, Asian countries just a hair worse, and natural resource-based economies much worse.”

In fact, metrics released by the IMF in October 2015 forecast growth of 3.6% in 2016, as compared to 3.1% percent in 2015. While both figures represent sluggish growth, at least the move is in the right direction, with both advanced and emerging economies contributing to this global growth. Let’s take a look at what to expect for the various regions.

Euro-Zone: Experts expect Europe to see moderate growth during 2016, with some predicting 1.9 percent GDP growth. This seems encouraging, given the limited population growth rate in the region. Although industrial activity slowed during the early part of 2015 in the continent, most of the lost ground has since been recovered, Greece notwithstanding. The moderate recovery being seen in the Eurozone is being driven both by domestic demand and by exports. On the other hand, productivity and investment are both projected to improve over the next decade or so, driving acceleration in growth to some degree.

North America: Economic growth in the North American continent is expected to mirror that seen in 2015, although Canada might see slightly slower growth than the United States, given the higher concentration in commodities, especially oil. Mexico is expected to see robust economic growth, accompanied by low unemployment as well as low inflation. In the US, despite the strength of the dollar and weak domestic and international demand, and the slowdown in productivity and investment, the overall GDP growth is expected to come in at 2.4% in 2016. Of course, the beginning of the Fed’s rate hike cycle has been causing concern across the globe.

LatAm & Africa: A large part of Latin America and Africa are commodity dependent, which has led to these countries facing difficulties in recent times. Brazil has borne most of the impact of the declining commodity prices in Latin America. The good news is that commodity prices are better today than they have been since before the 2007-2008 financial crisis. In Africa, the weakness in economic growth in Nigeria and South Africa, along with the continued decline in commodity prices, led to the overall economic growth to decline 1.5% from the 2014 levels to 3.4% in 2015. However, this region still has potential to see economic growth, both in the medium and long term, primarily due to its demographic, although political concerns continue to weigh on the continent.

Asia-Pacific: Forbes called this region “the wild card” in the global economic outlook for 2016. China remains uncertain, with the official GDP growth rate reported at 6.9% for the last quarter, down from the 7% reported for several quarters before that. Japan, on the other hand, has been seeing fairly low unemployment, although the nation seems to have relapsed into recession, with the shrinking population and therefore the labour force not helping either. The bright spot through 2015 was India, where economic growth remained strong, although capital spending has declined. The things in favour of India seeing robust expansion in 2016 are consumer spending as well as the low commodity prices. Adding to the good news, India has overtaken China with the strongest growth rate in the Asia-Pacific region, despite China’s inflated official growth rates! This economic trend is expected to continue through 2016, giving all of us here in the country, a glimmer of hope after a very long time.