Factors That Have Contributed to the Global Economy In 2016
Now that we are halfway through the year, the picture of the global economy is getting much clearer. As perceived at the beginning of the year, the economy has moved in the predicted direction. Experts had opined that the year was going to be the best in the last five years. This was in respect to the growth rate that had slumped near 3%. In November 2015, the IMF had pegged the growth rate in 2016 to be around 3.6%. However, this is not very impressive when compared to the average of 3.5% recorded between 1980 and 2014. The mood was upbeat then but it changed in just two months.
The IMF had changed its growth figure to 2.9% in January 2016 that was based on its findings then. Once again after six months, there is bad news on the growth front. There has been further downgrading by IMF, and the latest estimate is 2.4%. This has been influenced by weak global trade, and commodity prices that have been steadily low have diminished capital flows significantly. Added to this is the concern for advanced economies that have recorded very slow growth. However, the major factors that were considered to drive the economy still remain relevant.
Falling prices of oil and commodities
The slide in oil prices that reached very low levels in 2015 had posed to push up growth, but it did not happen. The position was negated by the Chinese economic deceleration and slow U.S. growth in the first half of 2015. Now that we have left it behind, and oil prices still maintain its downward trend, things are looking up. Countries like India, Japan, the U.S. and the U.K. are likely to experience accelerated growth. However, the global economy slowed down in the period April to June 2016 with the Brexit referendum threatening financial markets. Larger economies are likely to benefit from falling commodity prices as these are big commodity importers.
Barring the U.S., other major economies of the world continue to pursue soft fiscal policies. While the U.S. has raised the interest rates, India, Japan, Europe, China and Canada are still extending lower interests to stimulate their economies. Easy money policies of these countries have evinced positive response from investors.
The state of currency
The impact of lower prices of commodities had hit hard in countries like Brazil, Canada, Russia and South Africa. Interestingly, the currencies of these countries have fared very badly against the American dollar. However, the depreciated currencies can benefit them as they stand to recover losses through huge exports of energy and commodity. With increased exports and lower imports on the cards, these nations are likely to experience better GDP growth.
Detaching from the Chinese economy
The deceleration of Chinese economy that is continuing will have a minimal impact due to developments at other places. The U.S. is in a growth path supported by the greenback. Japan, India, and Europe are reaping the benefits of their fiscal policies. Russia, some Middle Eastern countries, Brazil and some Latin American countries are likely to fare better.
Advanced economies have fared better and the global economy is waiting to gather momentum. Stay tuned for more updates and news related to the economy!