Economic forecast 2016

Up until this fall, the economic picture in individual countries and regions has remained mixed. In our view global economic activity will again expand only moderately this year and growth will actually come in just below last year's figure at 2.4%. A slightly more dynamic pace of growth in the advanced economies as a whole, buoyed, in particular, by the ongoing recovery in the euro area, is being offset by a continued and marked slowdown in growth in the emerging markets. This is further exacerbated by the sustained contraction in Brazil and Russia.

Given the important role China plays as a sales market and consumer of raw materials, the slowdown in the Chinese industrial sector is having a knock-on effect on other emerging markets as well. With the slide in commodity prices, primarily as a result of an expansion in supply in the past few years, and given the uncer-tainty as to when and how quickly US monetary policy will return to normal, exchange rates have shifted considerably. A measure of uncertainty still lingers as to where the economy is headed. In our view, global economic activity will fail to latch on to earlier trends next year as well, but the recovery is likely to gather further momentum.

Lower commodity prices are likely to stimulate the economy in most developed countries for a while yet. The oil glut is likely to subside only gradually as adjustments continue to be made on the production side, for example in the US. The upward correction in oil prices is likely to be moderate at best, especially if Iran returns to the international oil market. Oil prices are likely to average USD 55/barrel in 2016, only marginally up on this year.

Overall, monetary policy will remain very loose, even if the Federal Reserve starts to gradually nudge up rates. Even without further central bank action, low interest rates will exert more of an impact as access to credit, be it corporate credit within the EMU or mortgage loans in the USA, has now improved further.

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