Smoother sail­ing for G7, com­modi­ties lower

Financial Mirror (Cyprus) - - FRONT PAGE -

Hav­ing en­tered the New Year, PwC’s econ­o­mists made their pre­dic­tions for 2016, ex­pect­ing smoother sail­ing for the G7 economies, that geopol­i­tics, rather than eco­nom­ics, will be at the top of pol­i­cy­mak­ers’ agen­das, and that com­mod­ity prices will re­main lower for longer.

The G7 is ex­pected to grow faster than 2% in GDPweighted terms, which would be the fastest pace since 2010. In con­trast, the E7 emerg­ing economies will grow slower than their trend rate (but still faster than the G7). Within the E7, the Brazil­ian and Rus­sian economies will con­tract and China will slow, but In­dia will be the star per­former.

Three geopo­lit­i­cal is­sues will con­tinue to dom­i­nate the news head­lines. First, the mi­grant cri­sis in Europe, which may slow down in the win­ter, but could flare up again in the spring. Se­cond, the re­sponse of the in­ter­na­tional com­mu­nity to the cri­sis in the Middle East. Third, the ref­er­en­dum on the fate of the UK’s mem­ber­ship of the Euro­pean Union.

As for com­mod­ity prices re­main­ing lower, this will be good news for most busi­nesses, house­holds and pol­i­cy­mak­ers in com­mod­ity im­port­ing economies, but a chal­lenge for coun­tries that rely heav­ily on com­mod­ity ex­ports.

PwC econ­o­mists also pro­vide more de­tailed pre­dic­tions for the year ahead, as sum­marised by UK Chief Econ­o­mist, John Hawksworth:

“We ex­pect the US re­cov­ery to switch into a higher gear in 2016, while the UK will also en­joy con­tin­ued con­sumerled growth. We should also see at least the be­gin­ning of the end of the Eu­ro­zone cri­sis. The once-mighty BRICs (Brazil, Rus­sia, In­dia, China), how­ever, will have an­other tough year in 2016, with the no­table ex­cep­tion of In­dia.”

The other pre­duc­tions by PwC econ­o­mists sug­gest:

The US will top the G7 GDP growth league ta­ble -

The US econ­omy will grow by al­most 3% and so con­trib­ute to around two-thirds of over­all G7 growth in 2016. It is also ex­pected that the US will con­tinue to cre­ate an av­er­age of around 200,000 jobs per month, help­ing to sus­tain con­sumer spend­ing growth. US and UK in­ter­est rates to rise in 2016: In De­cem­ber last year, the Fed led the way with its first rate in­crease since 2006. PwC econ­o­mists ex­pect it to con­tinue to raise rates, al­beit only grad­u­ally, in 2016. Bar­ring any ma­jor ad­verse global shocks, it is ex­pected that the Bank of Eng­land will fol­low suit at some point later in 2016. In con­trast with the US and the UK, the Euro­pean Cen­tral Bank, the Bank of Ja­pan and the Peo­ple’s Bank of China are ex­pected to main­tain an ac­com­moda­tive mon­e­tary pol­icy stance in 2016.

The

end

of

the Eu­ro­zone

cri­sis

- The pe­riph­eral economies will grow faster than the core economies for the se­cond year in a row. The Greek cri­sis could flare up again but this should not lead to con­ta­gion to the rest of the bloc, which is why PwC econ­o­mists ex­pect 2016 to mark at least the be­gin­ning of the end of the wider Eu­ro­zone fi­nan­cial cri­sis. With most im­bal­ances in pe­riph­eral economies un­der con­trol and struc­tural re­forms un­der­way, it is likely that Eu­ro­zone GDP will ex­pand by around 1.6% in 2016 – its fastest growth rate since 2011.

In­dia will be the star per­former amongst the E7

- For the se­cond year in a row, we ex­pect In­dia to grow faster than China, ex­pand­ing by around 7.7% in real terms. Chi­nese GDP growth will ease to 6.5%: China’s eco­nomic slow­down looks set to con­tinue with re­bal­anc­ing now un­der­way. Growth in man­u­fac­tur­ing and ex­ports will con­tinue to slow grad­u­ally.

How­ever, Chi­nese busi­ness lead­ers will con­tinue to move into higher value added ar­eas of man­u­fac­tur­ing. Sub­Sa­ha­ran Africa (SSA) will add ‘an Aus­tralia’ to the world’s pop­u­la­tion: SSA’s pop­u­la­tion will grow by more than 25 mil­lion peo­ple in 2016, which is larger than the en­tire pop­u­la­tion of Aus­tralia. This will be in line with past trends as SSA has added more than 20 mil­lion peo­ple per year to its pop­u­la­tion in ev­ery year since 2006. At a coun­try level, just un­der 20% of SSA’s pop­u­la­tion growth in 2016 will be driven by Nige­ria alone.

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