The World Economy in 2016

The world economy is expected to face complex economic problems on many fronts in 2016. Europe is struggling to overcome refugee and huge debt problems, few months ago the U.S. Federal Reserve began its financial tightening, China's financial stability is in doubt due to sharp decrease in global demand.

Turkey has also many problems, mostly 3 million Syrian refugees, uncertainty and continuation of the Syrian conflict,  persistent current account deficit,  lack of a competitive market, the Kurdish problem, inflationary pressures, the highest percentage of unqualified youth among all OECD member nations, plus the newly-created SU-24 problem with long-time-friendly Russia. There is also a brand-new dispute between Saudi Arabia and Iran.

Russia has also her own problems;  the continued impact of western sanctions, rapidly falling oil prices, the ruble’s depreciation, weak investment climate, declining productivity and adverse population dynamics as some of the main reasons.

The Harvard economist Kenneth Rogoff says: “The global economy could be doing much worse, but low oil prices and weak currencies are keeping the European and Japanese economies afloat”, and he warns of  "a slowing Chinese economy, collapsing commodity prices, and the beginning of the U.S. Federal Reserve's fiscal policies." In the United States, steady GDP and job growth has been constrained by weak productivities, but the amazing burst of innovation projects currently happening in places like Silicon Valley and New York is continuing. New investments announced at the Recent Paris Climate Talks are reason for optimism in the energy sector. In particular, the $20 billion allocated for clean energy research and development "could make it more likely for breakthrough technologies to emerge." As remembered, Bill Gates and 27 other US Dollar Billionaire investors pledged to support basic research and development (R&D) in clean energy.

“Emerging economies like Brazil, South Africa, Thailand, Indonesia, Russia and Turkey, except China, will be the real sources of concern in 2016”, says U.C. Berkeley's Barry Eichengreen. “With their high levels of short-term debt, these countries are vulnerable to currency crisis an thus potentially leading to huge economic problems"

“Europe faces the risk of debt crises”, writes CFR's Robert Kahn, but the most dangerous economic risk for the continent in 2016 is "a growing populist challenge from both the Left and Right," which could create economic policy uncertainty and constrain policymakers and weak growth (or decline) in emerging countries, historically an important market for Europe’s exports. 

Europe, like Japan, is also facing deep problems around aging populations, difficulty in absorbing refugees and immigrants, and slow productivity growth due to lack of structural reforms, but low oil prices and weak currencies are continuing to keep both economies on positive. Meanwhile, the Chinese government suffered a major collapse in its credibility by badly mishandling a collapsing stock market bubble.

Every unhappy emerging market is unhappy in its own way. But what they all have in common is uncertainty about the capacity and the willing of governments to respond.