Round Up 2015 | 28 December 2015
Looking back to look forward | In short
The dramatic declines in oil prices and commodities over 2015, created enough noise in many markets to obfuscate the modest growth achieved globally.
Whilst China decelerated and many emerging market economies contracted; developed economics recorded growth a mixed levels, but nothing was simple.
The Eurozone returned to moderate growth and the UK expanded slightly faster. Whilst the US grew comfortably its growth rate disappointed; and Japan experienced lackluster growth – again.
In financial markets:
- Global sovereign bond yields receded further
- The US dollar strengthened persistently, particularly vs emerging market commodity exporters
Stock market performances varied:
- The UK FTSE posted a moderate decline (however the make up of the FTSE is somewhat over-weighted by global commodity companies relative to the actual economy)
- The US S&P500, closed the year flat.
- Whilst there was a moderate gain in Europe (STOXX up 4% in local currency, down 7% in US dollar terms)
- And healthy performance in Japan’s NIKKEI
For 2016, we project global growth will pick up slightly.
Again the growth should be led by developed economies.
Overall we expect growth in Eurozone and UK to remain close to its growth trend – although disturbed mid-term by the uncertainty of Brexit.
Expectations are for the US will likely expand solidly, and strengthen over 2016.
The outlook in Japan is modestly positive while Canada will remain weak.
China’s growth will continue to decelerate gradually, while many emerging Economies will struggle with lower oil and commodity prices.
On the other hand India and Mexico are posed to outperform.
As Eurozone domestic demand stays firm, supported by healthy gains in Germany, Spain and Ireland, alongside some improvement in Italy, its leaders must deal with the challenges caused by the influx of refugees and the rise of populist protest parties.
These anti-European movements pose a more serious risk to the cohesion of the EU and the euro than the euro crisis of 2011-12 ever did. We expect these risks to remain contained as Europe tries to defuse the migrant crisis and unemployment continues to fall.
Whilst no major EU country has scheduled a national election for 2016, we see a 35% risk that the UK may vote to leave the EU. Brexit could be very disruptive for the UK and cause tremors across the EU. At the least, it will generate a slow down in trade with the UK in H1 2016 whilst the outcome is mooted.
We project US growth to exceed the forecasts of the Federal Reserve (Fed). Tight labour markets will finally push up wages and increases in core inflation will quickly follow.
As a result, we expect to see several rate rises by the Fed in 2016, more than is currently priced into markets, still leaving monetary policy accommodative.
We expect the Bank of Japan (BoJ) to maintain their quantitative easing and zero interest rate policies. Additionally we expected The People’s Bank of China (PBoC) to ease further, as well as the Reserve Bank of India.