Global and UK economy outlook 2016

As noted on the BBC’s website, The World Bank has warned of new threats to efforts to reduce poverty in the developing world and The Bank forecasts only a modest increase in growth.

The World Bank does think that global economic growth will pick up this year. If I were a betting man, I would doubt it. Why?

  1. We are still recovering from the Great Recession, which followed the international financial crisis and this is because…
  2. …the US. The Federal Reserve finally raised its main interest rate target from the level of practically zero it has had since the end of 2008. It’s likely to lead to higher borrowing costs, and lower currencies, because money will be moved to the US to benefit from the rising interest rates there. That in turn will make it more expensive to repay loans in dollars. And the issue is that the dollar is the world currency, 75% of world transactions, ouch an expensive prediction!
  3. …China’s slowdown and uncertainty. China was seen as our saviour and an economy that was tipped to overtake the US. Has it happened? To some extent it has moved in that direction, but in a country that likes to regulate its markets, the recent slowdown, which began around the start of the current decade, demonstrates to me that more volatility is to be expected. Tthe question has been: will it be a smooth transition or not, a hard or soft landing? So far, no crisis, though there have been some sharp stock market falls in China. There were several weeks of volatility in the middle of 2015 and trading for this year got off to an inauspicious start, with a fall of 7% in Shanghai and trading suspended.
  4. The oil price. Last time that the oil prices were low, we know where it took us…The Great Recession. The key question is when will it spike back up again and pinch consumers spending!
  5. Emerging markets. The IMF predicts that growth for emerging and developing economies will pick up this year, from 4.0% to 4.5%. Not enough to boost the world economies!

In a nutshell my glass is more half empty than half full, let’s hope I am wrong!

Benoit Mercier

 

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