Despite significant market turbulence in the beginning of this year, there are reasons to remain cautiously optimistic about the trajectory of the global economy throughout 2016 and beyond. This was the consensus of panellists at the World Economic Forum Annual Meeting, against the backdrop of very low oil prices and bond yields, as well as handwringing about the effect of the Chinese economy on markets and fears over the divergent monetary policies of the United States, Japan and Europe. Overshadowing Europe is the potential Brexit.
Global growth in 2016 will be modest and uneven, according to Christine Lagarde, Managing Director, International Monetary Fund (IMF), Washington DC. Global growth is estimated at 3.4% (it was 3.1% in 2015) and 3.6% in 2017. “We see global growth in 2016 as modest and uneven,” said Lagarde. “There is modest optimism but significant risks.”
These downside risks include the profound transition of the Chinese economy, lower-trending commodity prices as a result of oil prices and asynchronous monetary policies around the world. Lagarde said the global economy is presenting a “completely different picture that is changing.” This is due to growth in India and China and a downturn in Russia and Brazil. She pointed to the financing for development agreement reached in Addis Ababa, the Sustainable Development Goals and the Paris Climate Agreement (COP21) as significant events that will result in “changes in our economies”.
Europe’s economy is in better shape at 1.5% growth, but Lagarde pointed to two major concerns: potential Brexit and the refugee crisis. “If the refugee crisis is handled well and the integration process is conducted in a cohesive and organized way, it will be an upside for growth,” she said.
The United Kingdom has been a bright spot in an otherwise gloomy European Union context, said George Osborne, Chancellor of the Exchequer and First Secretary of State of the United Kingdom. “We are the fastest growing of the advanced economies, with record labour participation and low unemployment,” he said. The United Kingdom’s challenge is its call to reform the EU. “What we are seeking is reforms for all of Europe,” he said. “We want a more competitive Union.”
Osborne said that, within his party and among citizens, there will always be those who want to leave the EU. He noted that the reforms Britain is seeking are very significant. “I am optimistic we will get a deal for Britain and for the EU,” he said. “I want our continent to be a source of innovation, growth and jobs. If people see we are delivering that change, they will want to stay in a reformed EU.”