A Look Back at the Global Economy in 2016
As 2016 comes to an end, it is clear that the soon-to-be concluded year was both more of the same for the global economy and a year in which political developments could have set the stage for new threats to the longer-term health of the global economy. On one hand, global economic growth remained near 3% for the fifth consecutive year, the longest period of such sluggish growth for the global economy in 25 years. Going in to 2016, there was little hope for an improvement in growth for the global economy and, if anything, growth rates are likely to be slightly below forecasted levels when the final data for this year is compiled. In fact, 2016 confirmed that the current sluggish rate of growth is the new normal for the global economy, as growth ceilings in most of the world’s largest economies are significantly lower today than they were in previous decades. Furthermore, a number of developments took place in 2016 that have resulted in economic growth forecasts for the coming years being reduced as the outlook for many key economies remains weak or has worsened.
On the trade and investment front, inconsistent levels of business and investor confidence appear to have prevented any significant growth in trade and investment from occurring in 2016. Certainly, global trade levels continued to disappoint this year, continuing a five-year run in which global trade levels have either been stagnant or have declined. In fact, overall global trade levels at the end of 2016 are more than 15% below their levels of five years ago. This has been due to a combination of weak demand in key export markets and the impact of lower commodity prices. Moreover, the growing threat of protectionism that emerged in 2016 bodes ill for the prospects for global trade in the coming years. In terms of foreign investment levels, 2015’s recovery in foreign investment flows appears to have been short-lived, as investment levels have fallen by more than 5% so far this year. Again, rising levels of protectionism and the political developments in key economies in recent months have dented investor confidence, leading to this decline in investment levels. However, investor confidence appeared to bounce back in the final weeks of 2016, providing hope for an increase in foreign investment flows in the coming year.
For the world’s developed economies, 2016 was largely a year of consolidation and steady, if sluggish, growth. The world’s largest economy, the United States, had a disappointing first half of the year, as business investment levels were much weaker than expected. However, growth appears to have accelerated significantly in the second half of the year, raising hopes for more robust growth in the US in 2017. In Europe, that region’s recovery from the travails of the previous years appeared to peak in 2016 and a slight slowdown appears likely in 2017. This is due in large part to the uncertainty surrounding many of that region’s key economies, including Britain, Italy and Poland. Elsewhere, it was a mixed bag for the world’s other developed economies, with Japan and Canada experiencing sluggish growth in 2016, and with other leading developed economies recording inconsistent growth over the course of the year.
While economic growth in the developed world was disappointing, if steady, economic growth in emerging markets was determined largely by whether or not the country was located in Asia or somewhere else. In Asia, emerging market economic growth remained relatively strong in 2016, boosted by fast-growing domestic markets that offset lower export revenues. China, the world’s second-largest economy, avoided a hard landing in 2016, even as risk levels stemming from higher debt levels, market bubbles and manufacturing overcapacity continued to rise. Meanwhile, India maintained its position as the world’s fastest-growing large economy for the second consecutive year, while Southeast Asian economies largely grew at a healthy pace, led by the Philippines and Vietnam, two countries that have emerged as some of the fastest growing economies in the world.
Outside of Asia, emerging markets suffered yet another lost year in 2016 due to a lack of export competitiveness and low commodity prices. Latin America’s economy probably did not record any growth this year, with Brazil remaining in a deep recession and Mexico’s economy continuing to disappoint. Likewise, while the economic outlook in Russia and Ukraine improved a little, the region’s overall economic output remained well below the level of a few years ago. Finally, many of the leading economies of the Middle East and Africa remained in major slumps due to low commodity prices and the political unrest across much of these regions. Until these emerging markets can return to significantly higher rates of growth, overall global economic growth rates will fail to rise from their current sluggish levels, as the global economy’s main drivers of growth have disappointed in recent years.