The slowdown of the emerging economies is not explained solely by transitory factors, and will hold back the global economy in 2016 as well. However, the worst phase for global importexport trade should be over now.…
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– Economic growth in the advanced countries is by now being supported by domestic demand, and relies more on services than on manufacturing. This explains our modest revision to global GDP growth.
– The devaluation of the yuan, and the storm which hit the Chinese stock markets in August, have turned attention back to the risk of a sufficiently persistent and deep slowdown of economic activity in the emerging countries to have repercussions on growth in the advanced economies as well. In truth, events had already been evolving in this direction for some time, but the intensity of events in China over the summer have caused much greater alarm than the crises in Russia and Brazil, less likely to reap global repercussions, and than the previous deterioration of macroeconomic data in China. The crisis has also been accompanied by a significant outflow of capitals invested in the emerging markets, estimated by the IIF at 30-40 billion dollars between 10 August and 14 September, and amounting to 70-80% of the flight which in 2013 followed the Fed’s warning that it was starting to consider ending quantitative stimulus. Also, there is evidence of “contagion” having spread spreading to the stock markets of the advanced countries, undoubtedly aided by typically lower liquidity levels in the summer.
– Volatility has now peaked and is starting to drop, and in mid-September signals even came that capitals are flowing back towards the emerging markets. The slowdown in economic activity, on the other hand, is less transitory. The problems afflicting the Chinese growth model will translate into a further slowing of GDP growth in the next few years, although we believe the 2015 contraction in imports to have been amplified by temporary factors, and that the import trend will pick up again in 2016. The Brazilian economy, also hit by lack of confidence in the government’s fiscal policies, will continue to contract in average annual terms in 2016, at least compared to 2015. Russia will continue to be impacted by low oil prices and by economic sanctions, achieving only modest growth in 2016 (+0.5%), after the 2015 crash (-3.5%). Oil-exporter countries will not be able to count on a significant recovery in prices in 2016, either. Among the major emerging countries, for the time being only India seems to be escaping the overall trend, to the point that we expect growth rates in excess of 7% in 2016 as well. The implication is that while demand for imports in the emerging countries will recover from the lows hit in 2015, it will fall short of the growth rates seen in the past.
– The value of foreign trade in current dollars in 2015 has decreased significantly, mostly pushed down by the drop in the price of oil, which alone has reduced the value of importexport trade by over 900 billion dollars, but also as a result of the slowdown in volumes growth (which we estimate at over one per cent, from 4.1 to 2.9%). In 2016, trade volumes should accelerate back to levels in line with 2014, and the global demand index should recover from 0.5 to 3.0% for the United States, from 1.3 to 4.6% for the euro area, and from 0.2 to 4.4% for Japan. The recovery will be supported by the rebound in Chinese flows and by recovering domestic demand in the advanced countries, expected to consolidate next year in G7 countries. Of the latter, only Canada is expected to take advantage from a strong contribution to net exports, as a result of rising exports to the United States.
– In the advanced countries, domestic demand will continue to be supported by accommodative financial conditions and neutral fiscal policies, which partly neuter the drag from emerging markets. Global growth is expected to accelerate marginally, to 3.1 from 3.3%, resulting from 2.3% growth in advanced countries and 4.4% progress in the emerging economies; revisions since June amount to -0.4% for the emerging countries and -0.2% for the advanced.
Appendix
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