Eight Economic Predictions for 2016
Before we look ahead to 2016, we will first take a look at our predictions for the global economy for the past year. Last year, we warned that 2015 would be another year of global economic growth of just around 3%, well below the levels reached prior to the financial crisis of 2008-2009. Moreover, we accurately predicted that China would experience a year of slower economic growth and market turmoil, which came to pass. In addition, we warned that Europe’s economic struggles would continue (although we underestimated Spain’s capacity for a recovery in 2015) and that deflation would persist in Europe and would return to threaten the Japanese economy. Two other accurate predictions for 2015 were that more countries would use currency depreciations as a weapon to boost export competitiveness and that the price of oil and other natural resources would continue to fall over the course of 2015.
After last year’s successful efforts to predict the direction of the global economy in 2015, we are confident that our predictions for the global economy in 2016 will be just as accurate. As a sample, here are eight of our more broad-based predictions for the global economy in 2016:
Sluggish Global Growth Continues: After four consecutive years of global GDP growth rates of between 3.1% and 3.4%, global economic growth will remain steady in 2016, with the global economy growing by 3.6% in 2016. The last time the global economy failed to grow by at least 4% once during a five-year period was 1992 to 1996, so it is clear that we are in the midst of a prolonged period of sluggish growth.
India Takes the Lead: 2015 was the first year in which the Indian economy grew faster than its Chinese counterpart since 1999 (and just the second time since 1990). In 2016, India’s economy will once again outgrow China’s this time by a margin of 7.5% to 6.5%, as domestic demand in India boosts that country’s growth rates.
No Hard Landing in China: While China is no longer the world’s fastest-growing large economy; there will not be a hard landing for the Chinese economy in 2016. This will be due to the fact that consumer spending in China will continue to rise by double-digit levels as China’s economy moves away from its dependence upon exports for growth, with Chinese consumers emerging as a key pillar of global economic growth in 2016 and the years beyond.
3% GDP Growth in the United States: The United States economy has not grown by at least 3% since 2005, the longest period in US history without reaching this growth threshold. However, this streak will come to an end, barely, as the US economy will expand by 3.0% in 2016 thanks to high levels of consumer and business spending.
Deflation and Sluggish Growth in Europe and Japan: Both Europe and Japan will struggle to significantly boost economic growth rates in 2016, and both regions will continue to face the threat of persistent deflation. With domestic markets in both economies remaining relatively weak, both Europe and Japan will remain dependent upon exports for growth in 2016, and a weaker euro and yen will boost both regions’ export competitiveness next year.
US and China Drive Growth and Investment: The United States and China will account for 40% of total economic growth in 2016, a trend that will continue in the years ahead. In addition, strong currencies and ambitious US and Chinese companies will result in these two countries launching a new surge in foreign investment in 2016, reviving foreign investment at a time when FDI flows remain well below pre-crisis levels.
Growing Protectionism: The threat of protectionism will continue to rise in 2016, driven by the increase in support for populist politicians and political movements in many areas of the world. One example of this protectionism will be the failure to reach an agreement on the Trans-Atlantic Trade and Investment Partnership (TTIP) in 2016, largely due to well-supported protectionist movements in some European countries.
Low Natural Resource Prices: There will not be a rebound in the price of oil or other natural resources in 2016, due to the fact that supply levels will remain high and demand levels will not rise as fast as had been expected just a few years ago. This will result in more sluggish economic growth rates for countries that are dependent upon natural resource exports for their growth.
Infrastructure Investment Will Soar: A key growth industry in 2016 will be infrastructure, as many of the world’s leading economies embark on major efforts to upgrade their transportation, power generation and communications infrastructures. The fastest-growing infrastructure sector in the world will be found in India, which is spending vast sums of money to upgrade all areas of its infrastructure.