Glimpse of world economy in 2016

Opinion Monday 11/January/2016 14:21 PM
By: Times News Service
Glimpse of world economy in 2016

The world economy, as a whole, is forecast to grow by 2.7 per cent in 2016, while it hasn’t managed an increase of more than 3 per cent since 2011. The world's economy will grow, but the pace will be 'disappointing and uneven', the head of the International Monetary Fund says. The world economy is currently growing at its weakest pace since it began recovering in 2009, with global GDP growth for 2015 estimated at 2.5 per cent, in real terms. But measured in nominal dollar terms, global GDP will likely contract by about 5 per cent this year. This would be just the third time that the global economy has shrunk in nominal GDP terms since 1980.
The world economy will be held back by US interest rate hikes, while China's slowdown from its torrid recent pace is wreaking havoc in commodity markets and hurting countries that rely heavily on natural resources, such as Canada. Additionally, the financial sector in many countries is still showing weaknesses, and financial risks are rising in emerging markets
Additionally, expect the US economy to retain its role as the engine of global growth in 2016. However, growth is likely to remain modest, compared with previous economic cycles, allowing the Federal Reserve to proceed on a very gradual tightening path. The Bank of England is likely to follow the Fed's lead and initiate its tightening policy later in 2016, in contrast to Europe and Japan, where ongoing central bank stimulus is expected to support those economies' mild recoveries.
Whatever happens to the Chinese economy is, indeed, going to be the major determinant of how the global GDP number goes. Simply, as above, because the stunning growth in China over the past couple of decades has made it a significant part of the world economy. China’s slowdown will affect the BRICS, of course, because much of their growth has been from feeding raw materials into China’s booming economy.
There are potential spill over effects, with the prospect of increasing interest rates there already having contributed to higher financing costs for some borrowers, including in emerging and developing markets. A challenging political landscape looms on the horizon for the eurozone. The influence of populist parties, both from the right and the left, is gaining momentum in Europe, and their national political agendas represent a risk to eurozone policies.
The eurozone will continue to face the challenge of very low inflation, high unemployment, fiscal and public debt adjustment, and the impact from slower economic growth in key emerging economies. Looking forward, the eurozone economy is expected to maintain its pace of growth in 2017. The economy is seen increasing by 1.7 per cent. Looking at the economies in the eurozone, forecasters raised the 2016 economic outlook for 5 of the 19 countries in the region. Growth prospects for 12 economies were left unchanged, while Latvia and Portugal being the only economies for which forecasts were revised down.
Germany’s economic outlook is fairly stable. Consensus Forecast panelists see GDP growth picking up slightly, from 1.6 per cent in 2015 to 1.8 per cent in 2016. For 2017, analysts expect the economy to expand at a steady pace of 1.7 per cent.
France, a weak euro and low energy prices are expected to support France’s economic recovery going forward. Focus Economics panelists predict the economy will expand 1.4 per cent in 2016, which is unchanged from last month’s forecast, while panelists expects GDP to grow 1.5 per cent in 2017.
Italy’s economy is seen as accelerating in 2016 thanks to a broad-based economic recovery in the euro area. Focus Economics panelists expect the economy to expand 1.3 per cent in 2016, which is unchanged from last month’s forecast. For 2017, the panel sees economic growth moderating to 1.2 per cent.
Economic dynamics in the Middle East and North Africa will remain the primary causes of the current soft patch, which are far from abating. Oil prices are expected to remain low in 2016, thereby putting a dent in the region’s economic growth, particularly in oil-export-driven countries. Moreover, oil-reliant economies will have to embark on a sizable fiscal adjustment to correct this year’s excessive budget deficits.
Asia remains the wild card for the global economic outlook. China, in particular, is opaque: experts don’t really know what’s happening inside that giant economy. The official growth rate of GDP is 6.9 percent, down from 7.0 in previous quarters. Further, Japan has relapsed into recession, though unemployment remains very low. Japan’s shrinking population and labor force prevent much growth there. Yet India’s growth remains strong, though capital spending has slackened this year. Consumer spending and low commodity prices are strengths that should enable India to continue its strong expansion.
The Indian economy is poised to do well next year, also, and the growth rate is expected to be in the range of 7.5 per cent. In 2016, India’s Gross Domestic Product (GDP) growth slowed to 7.0 per cent in the first quarter of financial year (FY) 2015 (ending 31 March 2016) from 7.5 per cent in the last quarter of FY2014.
The deceleration was broad-based, with private consumption, manufacturing, and services all experiencing slower growth. However, expansion in fixed investment picked up to 4.9 per cent from 4.1 per cent in the previous quarter, indicating a continuing gradual recovery in capital expenditure. India was the world’s fastest growing aviation market in 2015, expanding more than 20 percent, as economic growth on the subcontinent picked up.
Additionally, the country's air travel industry outpaced the 10 per cent growth registered in China and 5 per cent increase in the United States, according to International Air Transport Association. The IMF's forecast for 2020 sees India occupying the top slot among major economies, with a growth rate of 7.7 per cent.
Meanwhile, Europe is slated for moderate growth, at 1.9 per cent measured by GDP. Given the minimal population growth rate for the Continent, this is decent, but not booming. Industrial activity edged down earlier this year, but has since recovered most of its lost ground. Although the agreement with Greece merely papered over fundamental problems, the major economies will continue unscathed.
Canada will grow a bit more slowly than the US, due to its concentration in oil and other commodities. Further, Mexican economic growth is solid, with low inflation and low unemployment. The country’s prospects are good.
Its been a hellacious year for Brazil, due to political crisis, the impact of Russian sanctions, and oil. The IMF is expecting both countries' economies to continue shrinking in 2016, but not as rapidly. No other major economies are expected to be in recession next year. The IMF predicts Mexico will grow 2.8 per cent, Nigeria expand 4.3 per cent, and South Africa will manage a bare 1.3 per cent increase in output.
Everybody expects the dollar to rise against other currencies in the future, as the Federal Reserve continues to raise interest rates. This means that economic activity conducted in other currencies, when measured in dollars at those market rates, will be worth less. We’re not, in fact, saying that growth is going to fall when measured in renminbi, euros, yen or pounds. Rather, that it will fall when we measure it in dollars. And that’s a useful measure, but not a complete one.
I still think that the global economy at the end of 2016 will be producing more goods and services than it did at the beginning: It’s just that the value of our measuring stick, the US dollar, has changed. The global GDP could fall by 5 per cent this coming year.
Recessions are a normal part of the macroeconomic cycles that the world experiences, and happen from time to time. The last recession was seven years ago. Signs may show that the next one is right around the corner. - Special to Times of Oman