The global economy in 2016

2016 will be marked by gradual rises in US interest rates, low oil prices and a continued economic slowdown in China. Global GDP, while well below pre-inancial crisis highs, will speed up slightly from 2015 to 2.6% at market exchange rates and 3.4% at purchasing power parity (PPP).

Advanced OECD economies will remain on a steady course, expanding by a little over 2% in PPP terms. Cheap energy will help: Brent will average US$53 a barrel in 2016. Aided by strong labour and housing markets, and recovering government spending, the US will grow by 2.4%. Businesses in the EU will beneit from loose monetary policy, although the risk of a Greek exit from the euro zone lingers. In Japan, “Abenomics” will struggle to snap the economy out of its doldrums, in the face of population ageing.

Scintillating growth across an array of emerging markets will not return in 2016.

As monetary tightening inches forward in the US, capital will low from them to it, causing capital outlows and volatility for some. Especially vulnerable are big commodity exporters and countries with large iscal and current-account deicits, or a lack of credible policymaking: Nigeria, Russia, South Africa, Turkey and Venezuela stand out. Brazil is labouring to counter rapid inlation, a wide budget deicit and high interest rates, while impeachment hangs over its president, Dilma Rousseff: in 2016 GDP will contract again, by 2.5% in real terms. India is a bright spot, offering 7.4% growth, but reforms will be needed for it to fulil its potential. China, too, faces formidable structural challenges.

Yet many worries about the global economy are overblown. Despite its problems, China will expand by 6.5% in 2016, as services outpace industrial output and investment accelerates. Unlike in past crises, moreover, non-OECD economies overall enjoy ample foreign reserves and liberal exchange rate regimes: the risk of a wholesale emerging market meltdown is remote. Non-OECD economies will grow by 4.5% in PPP terms in 2016.