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Economists: Global Economy a Mixed Bag in 2016

  • By Ira Apfel
  • Published: 12/21/2015
For more perspectives on the economy in year ahead, check out the 2016 AFP Business Outlook Survey, underwritten by SWIFT. DOWNLOAD

flatlinerAFP spoke with some of the world’s leading economists about their projections for 2016. Results were mixed; while some economies and sectors are poised to pick up steam, others are in for a tough year.

Josh Nye, Economist, RBC Economics Research, U.S. Economy: We expect global growth will pick up in 2016 relative to 2015 with both advanced and emerging market economies growing at a faster pace. Euro area growth is set to pick up as the recovery continues to gather momentum amid stimulative monetary policy and exchange rate depreciation. Canadian growth is forecast to accelerate as the impact from lower oil prices begins to fade and net trade picks up, while UK growth is expected to remain solid.

The forecast is more mixed for emerging market economies although on net we expect growth will improve relative to 2015. China’s GDP growth is expected to continue to slow modestly as the economy transitions toward more consumption-driven growth, while continued strength in India’s economy should provide some offset. Several other emerging market economies that were hit hard by falling commodity prices in 2015 will likely continue to struggle, although downward pressure is expected to ease somewhat in 2016. Solid momentum in advanced economies should also provide a tailwind to emerging markets. Rate hikes by the U.S. Fed could prompt some tightening in global financial conditions; however, this will be partially offset by continued easing from the ECB.

Chris Rupkey, Managing Director and Chief Financial Economist, MUFG Union Bank: World economic growth concerns center chiefly on China, although the slowdown there is a bit exaggerated. Real China GDP might slow to the low 6 percent range in 2016 from 6.9 percent in the third quarter of 2015. The focus is on GDP, but it is their manufacturing that has slowed dramatically. Most of the factories to meet the world’s demand for goods both in America and in Europe have already been built.

As a result, China will not have the same demand for commodities like copper, crude oil, steel and cement as they have the last 10 years. This has had a depressing effect on commodity prices, which has led to economic weakness in many emerging market nations. But I think 2016 will be the year where we see commodity prices hit bottom and that would be a good thing for the world economy.

Lorena Dominguez, Chief Economist, HSBC Mexico: The final reading of 3Q15 real GDP figures posted better results than the first estimate, reflecting that economic activity continued to gain traction. The main upward revision was in services, which grew 0.8 percent quarter-on-quarter versus 0.5 percent quarter-on-quarter in the first estimate, showing that this sector maintained a sound growth in the 3Q15. Industrial production was also revised up to 0.8 percent vs 0.7 percent in the first estimate, confirming that it gained traction in the 3Q15. Finally, it is worth noting that the agricultural sector grew notably this quarter.

HSBC expects GDP to expand 2.3 percent in 2016, led by the services sector. In contrast, we expect the industrial sector to continue to struggle to grow due to lower external demand and local factors.

Dr. Christopher Probyn, Chief Economist, State Street Global Advisors: Our scenario for 2016 is for more of the same: lackluster growth, low inflation and limited policy tightening. Moreover, we continue to see the risks as skewed to the downside. Overall, we expect the global economy to expand by 3.3 percent in 2016.

Although downside risks are higher for emerging markets, we expect emerging markets to grow 4.3 percent in 2016, modestly up from 4.2 percent in 2015. Our core scenario for emerging markets is gradually slower Chinese growth, no commodity bust and a steady and well-modulated liftoff in U.S. interest rates. A negative surprise in any of these areas could lead to financial market volatility, which could reduce EM growth in 2016.

The Chinese economy, which is larger than the Brazilian, Indian and Russian economies combined, is expected to grow by 6 percent. India should grow 7.7 percent in 2016 amid tailwinds from Prime Minister Modi’s ongoing reforms and low energy prices. We see Brazil’s economy contracting 0.6 percent, given the commodity price collapse, capital outflows and continuing political uncertainty. And the Russian economy will also continue to be in recession in 2016.

Growth in Europe and Japan should improve, albeit at a slower pace than the U.S. Nonetheless, we expect Japan to grow by 1.2 percent in 2016, which would make it one of the poorest performers among the world’s major economies.

A longer version of this article appears in the December edition of AFP Exchange.

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