The global economy is poised for economic growth comparable to that of recent years, but with a somewhat different texture. European countries will do a little better, Asian countries just a little worse, and natural resource-based economies much worse.
Europe is expected to experience moderate growth, 1.9% measured by GDP. Considering the minimal population growth rate for the continent, this is decent enough but not booming. Industrial activity declined slightly at the start of the year, but has since regained most of the lost ground. Although the deal with Greece has only covered up fundamental problems, the major economies will remain unscathed.
Here in North America, look for growth at about the same rate as last year. The economic outlook for the United States has been outlined in my recent 2016-17 economic forecast. Canada will grow a little slower than the United States due to its concentration in oil and other commodities. Mexican economic growth is strong, with low inflation and low unemployment. The country’s outlook is good.
Asia is the wild card for the global economic outlook. China in particular is opaque: we don’t really know what is going on inside this giant economy. The official GDP growth rate is 6.9%, up from 7.0 in previous quarters, but no one trusts the official statistics. We know that US exports to China declined at the start of the year, but have improved in recent months. Consumers are helping the economy, which is good news given the weakness in capital spending. Elsewhere, Japan has fallen back into recession, although unemployment remains very low. The shrinking population and workforce are preventing strong growth there. India’s growth remains strong, but investment spending has slowed this year. Consumer spending and low commodity prices are assets that should allow India to continue its strong expansion.
The commodity-dependent countries, much of Latin America and Africa, and parts of Asia, are going through difficult times. Commodity prices are 30% below their 2011 peak, leading to cuts in mining, oil and agriculture. Current price levels are still better than anything seen before 2007, but they do not justify the continuation of recent production levels, and certainly not the continuation of construction of new projects.
The world is likely to grow a little slower than the IMF expected, mainly due to China and its neighbors. However, the growth rate for 2016 will not be much different from what we have seen in recent years. The texture will be different, however, with more gains in Europe and less in China and countries dependent on commodities.