ABOUT the only compliment I can say about the year 2015 is that it was not boring. Although there were some remarkable moments, on the whole it seemed our comfortable 21st-century existence was increasingly being put at risk and it is with no small measure of relief that we turn the page on our calendar.
On the economic front, however, 2015 was a bit more placid. We in the media did our best to make drama of issues like the Greek crisis, the slowdown in the Chinese economy, and the hike in US interest rates, because that’s our job, but none of those things significantly changed the way the world does business or had a significant impact on most people’s standards of living.
But that may change in the coming year. I am more hesitant to make predictions this year than I usually am because of the great deal of uncertainty about what the political and social upheaval that began this year will bring, and given the guarded tone of most analysts’ outlooks for 2016, I am apparently not alone. Unlike organizations like UBS, HSBC, and JP Morgan, however, I don’t having paying clients to worry about discouraging, so perhaps I can be a little more frank about my forecasts. With that in mind, this is what I’m watching in 2016:
• Financial markets in ‘emerging economies’ are going to perform well below expectations. The attraction of ‘emerging markets,’ given the continued decline in oil and commodity prices, serious economic trouble in at least three of the BRICS (Brazil, Russia, and South Africa), cooling conditions in the other two (India and China), and the lack of incentives from large-scale stimulus programs in Western economies, is well and truly over, and markets like the Philippines are going to struggle to meet their goals. While in some places – the Philippines perhaps being the best example – market activity largely exists in a bubble that does not have much of an impact on the wider economy, in others (like Indonesia) it will have a noticeable negative effect.
• Monetary policy will generally become looser. The US Fed rate hike had much less of an effect on the rest of the world than was anticipated, largely because the rest of the world had months to prepare for it, and since it came long after the Fed’s quantitative easing program had ended. With political stress in the US growing throughout 2016 as the country prepares for a change in administration, the Fed is probably going to realize sometime after mid-year that they have to dial it back a bit; other central banks, if they have not already eased policy before then in response to slowing economies, will follow suit.
• China will continue to slow down. The Chinese economy has now become big enough that comprehensive disorder is probably unlikely, but its growth will continue to decelerate through the year. This will have knock-on effects for other economies that trade heavily with China, and will also affect those economies (particularly in Africa and the less-developed parts of Asia) who stand to benefit from China’s ambitious global investment strategy, because that activity will slow, although it is not likely to stop altogether. The delay in the start of construction of the trans-Nicaragua canal is an example of the sort of circumstances we can expect to see more often through the coming year.
• Commodity prices have nearly bottomed out, but oil is going to continue its slide. Saudi Arabia just this week announced that it had retooled its deficit projections and made adjustments on petroleum subsidies in anticipation of continued low prices, which are in turn mostly a function of continued oversupply. Conditions in countries that rely heavily on commodities (Australia and Indonesia, for example) will stabilize, not growing any worse but not improving to a significant extent; conditions in countries that rely heavily on oil, however, are going to have a bad time of it – bad enough, in fact, that it may lead to serious upheaval in countries that are already struggling, such as Venezuela and Nigeria.
• Inflation will stay below 2 percent all year, and below 1 percent for at least part of 2016. In its year-end analysis, banking giant UBS forecast inflation on global basis to rise by an average of somewhere between half a percent and one percent, but this appears to be based almost solely on the expected impact of the Fed’s recent rate hike on the trans-Atlantic economy. Elsewhere, however (such as in this country), boosting demand will prove challenging, and prices will stay somewhat depressed.
• Politics will be 2016’s Wild Card. Venezuela and Brazil are at serious risk of political upheaval due to bad economic conditions already, Nigeria is sliding in that direction due to a combination of a struggling oil economy and the persistence of the Boko Haram Islamist insurrection, and other countries where some level of damaging political unrest is a real possibility include Myanmar, Bangladesh, Malaysia, and the Philippines. If any of these countries tip into actual political disorder, the economic impact could be drastic.