Written by Bradley Adams, GEI Associate
Given the drop in many commodity prices across the world, developing countries are seeing lower growth, especially for oil exporters. For oil importers, however, these reduced prices have provided an opportunity for growth. Oil prices have more than halved since September of last year, which has allowed importers to cut costs by a large amount. Nonfuel commodities dropped 4% according to the IMF, and they are expecting this trend to continue through 2015, resulting in a projected 15.6% decrease in 2016. Due to lower commodity prices the IMF has dropped emerging markets’ projected growth from 4.6% to 4.2% in 2015.
There are a number of other factors that are accounted for in this projection including political unrest in the Middle East and Russia, as well as a rebalancing in China. The IMF believes these factors to become smaller in 2016 as projected growth in emerging markets is expected to be a liitle stronger, reaching 4.7%. There is some uncertainty in regards to this projected growth as there is a fairly large amount of volatility in markets at the moment, especially China.
The Institute of International Finance projects that capital flows to emerging markets could see a further decrease throughout the year as the Fed looks to raise rates in September and possibly again in December. This is coupled with the lackluster growth we have seen in these markets recently, as well as the political unrest in Russia and Middle East. While the IMF and IIF (Institute of International Finance) both predict a pickup in capital flows to emerging markets in 2016, they also state a clear downside risk due to the Fed tightening and slowing global growth.
Though uncertainty is present, there is confidence in the continued growth within advanced economies. In the US there is a strengthening in the housing market, lower fuel prices, and increases in consumption and investment, which suggest continued growth, as these remain intact. While this could be hindered by an increase in interest rate the IMF does not believe this will cause a large setback. While predictions for Europe remain generally consistent with that of other advanced economies, much uncertainty lies with Greece.
According to the IMF, Japan has also seen an increase in capital investment though consumption has remained stagnant as well as real wages.
The general outlook is favorable for advanced economies though much uncertainty exists due to political unrest as well as volatile markets, mentioned above. Developing economies will see slowed growth due to a poor commodity market, though if the Middle East, Russia, and Greece sort out the current political unrest these 2015 hot spots should have a decreasing impact next year.