Following a Fourth Year of Lackluster Growth, a Modest Recovery Should Define the World Economy in 2016

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Since 2012, world growth has been range-bound, however, during that time, the growth in the advanced economies has accelerated gradually, while economic activity in emerging markets has decelerated dramatically. IHS Inc., the leading global source of critical information and insight, expects a slightly better overall performance for the world economy in 2016, with an expected growth rate of around 2.9 percent.

“Solid growth in the United States and a slight pickup in the pace of Eurozone and Japanese economic activity -- combined with an expected easing of recessionary pressures in Brazil and Russia -- are among the reasons for this moderately upbeat assessment,” said Nariman Behravesh, chief economist for IHS. In the same vein, low oil prices and more monetary stimulus—in particular, from the European Central Bank (ECB), the People’s Bank of China, and (possibly) the Bank of Japan—will not only support growth, but could also provide the basis for some upside surprises.

“Unfortunately,” Behravesh continued, “there is no shortage of downside risks, including high public- and private-sector debt levels, corporate risk aversion, further weakness in China and other emerging markets, and daunting geopolitical risks.” This means, he said, that the probability of the global economy being stuck in low gear for another year is still uncomfortably high.

US growth will remain solid. The underlying fundamentals of the US domestic economy remain sound. Increases in consumer spending, housing activity, and nonresidential capital spending – excluding the energy sector – will all be positive contributors to growth. Additionally, thanks to the recent congressional budget agreement, government spending will add to GDP growth in 2016, after being a negative factor for the past three years.

“Europe will keep growing at a modest pace,” Behravesh said. Four trends are supporting this improved outlook: low energy prices, reduced fiscal headwinds, more monetary stimulus, and a weak Euro; with the latter two expected to support growth even more in 2016. “A weakening currency is providing something of a buffer for the Eurozone from weak global growth,” Behravesh added.

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