Global Economic Outlook 2016

prediction quote

The global economic outlook is depressed with global growth rates likely to continue below long term trends. This year’s star performing continent will be Africa, where macro-economic annual growth is predicted to be in the 4.7-4.9% range.

Predicting the global economic outlook and business developments is notoriously difficult, especially in this increasingly interdependent and uncertain world. The year has begun turbulently with trading on the Shanghai Stock Exchange suspended over several days, while tumbling oil prices and deteriorating bilateral relations between Saudi Arabia and Iran have added to the uncertainty. But this should not prevent one trying, even if some of the predictions are proved wrong. As John Maynard Keynes said, “It is better to be approximately right than precisely wrong“; so here goes.

Trading Climate

The general trading environment is shaping up to be similar to that in 2015 with global growth rates likely to continue below long term trends. Inflation and interest rates, until now depressed in many Western economies, further show signs of remaining at historically low levels. There are also grounds for significant concern over deflation and low economic growth in some of the developed economies. Commodity producers and many emerging economies may struggle to adjust to the new world of low oil and commodity prices. Countries with floating exchange rates however, such as Canada or Australia, may escape from significantly negative impacts.

Uncertainties/Risks

One looming uncertainty in the global economic outlook is China’s slowdown. Officially its economy is still expanding at over 6%, however unofficially close observers suggest growth could be considerably lower at around 3%. China’s economy is acknowledged to be in need of rebalancing, and short term this will be a greater priority for the Government than a programme of stimulus. The risk therefore is that China could slow even further.

Global economic outlook is affected by China

China’s economy needs rebalancing

Other risks include continuing low commodity prices and higher US interest rates. Potentially the former could well generate financial or political crises in some emerging economies. Meanwhile the continuing migration crisis will impact further on the political coherence of the EU. There is also an outside risk that OPEC could decide to limit output and thus raise oil prices, however there are no signs of this happening any time soon. Saudi Arabia, the world’s largest producer, is maintaining its output.

Oil Prices: Positive for the Global Economic Outlook?

It is usual to think of low oil prices as a good thing for the global economy, and broadly speaking it is. The price fall over the last 12 months or so from over $110 to around $30 a barrel has transferred over $2 trillion dollars from oil producers to consumers. This is nearly the equivalent of the UK economy. It takes time for this to feed through to consumer country economies but could nevertheless add as much as 1% to these countries’ growth. If oil prices fall even further, consumer countries are likely to experience increasing economic benefits.

Further Positives 

This year’s star performing continent will be Africa, where macro-economic annual growth is predicted to be in the 4.7-4.9% range. In Asia, the world’s fifth largest economy India is predicted to grow by 6-7%. That, combined with increasing EU growth and moderate growth in North America, bodes well for the wider global economy.

Finally, an important side affect of relatively slow global growth has been the fall in carbon emissions. The 0.6% drop witnessed in 2015 could be matched in 2016. Along with the falling cost of renewable energy and the relatively positive outcomes of COP 21, the world appears to be on a surer footing towards global sustainable growth!

Former British diplomat with 36 years’ experience of bilateral relations, commercial promotion and policy advising in Latin America, Europe, Africa and Australasia. Head of British High Commission, Papua New Guinea and Head of the British Embassy in Liberia. David is an experienced networker with a strong track record of promoting UK business in less developed markets.

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