IHS Top-10 Economic Predictions for 2016

Estimated reading time: 10 minutes

Revised data show that the Japanese economy avoided recession in 2015—negative growth in the second quarter was followed by positive growth in the third quarter. However, since 2011, Japan has suffered through three recessions, defined as two or more quarters of negative growth. There is a growing sense that while the three arrows of Abenomics—aggressive monetary easing, agile fiscal stimulus, and structural reforms—have lowered the yen considerably and boosted the stock market, they have had little impact on economic fundamentals. Specifically, after a brief bout of inflation, prices are stagnating again. More importantly, inflation-adjusted wages have fallen over the past three years, hampering consumer spending. The good news is that real wages have stopped declining recently. This will help consumer spending and housing. IHS expects that Japan’s growth rate will be a lackluster 1.0% in 2016, after an even more meagre 0.5% advance in 2015. One risk on the horizon is the planned April 2017 sales tax hike from 8% to 10%. This could trigger another spending cycle (as occurred in 2014), with buy-in advance behavior helping growth in late 2016 and early 2017, but increasing the risk of another downturn in mid-2017.

4. China’s economic activity will decelerate even more.

Since 2010, China’s growth rate has steadily declined. The past year was no exception, with 2015 growth expected to be 6.8%, compared with 7.3% in 2014 and 7.7% in 2013. IHS predicts that China’s growth rate will decline even further to 6.3% in 2016. In fact, the Communist Party has set a target to double the level of real GDP between 2010 and 2020, which implies an annual average target growth rate of 6.6% between now and 2020—the slowest target growth rate in a long time. The actual growth rate is likely to be even lower. Continuing problems (overcapacity, high debt levels, and low or negative rates of return) in the heavy manufacturing, utilities, and mining sectors have been—and will continue to be—the principal drags on the economy. On the other hand, the services sectors and light manufacturing are proving more resilient. At the same time, the news on the real estate markets is no longer uniformly bad. Home sales are picking up, although high inventories will continue to dampen construction activity. Neither the change in the government’s one-child policy nor the Chinese renminbi’s inclusion in the IMF’s special drawing rights basket is likely to have a big impact in the near term.

5. Some emerging markets will remain in recession, while growth elsewhere will disappoint.

Since the beginning of 2013, emerging markets have been hit by a "perfect storm": plunging commodity prices, capital outflows, and plummeting currencies (forcing some central banks to raise interest rates, even during recessions); swooning stock markets; and stagnating world trade. Those hit hardest have been commodity exporters, especially those with weak finances or other structural problems. This includes oil exporters such as Iran, Venezuela, Libya, and Algeria; whereas strong reserves and better finances have protected Saudi Arabia, Kuwait, and the United Arab Emirates. Two of the hardest-hit economies have been Brazil and Russia, both of which are suffering deep recessions. At the other extreme, net commodity importers such as India are doing much better. The recessions in Brazil and Russia are expected to last into 2016, and growth in most emerging markets will remain challenged by weak global growth, fragile exchange rates, and low commodity prices. Nevertheless, as commodity prices bottom out in 2016, the pressures on emerging markets will likely ease.

Page 2 of 4

• < Previous Page
• Next Page >