The world economy isn’t heading for disaster in 2016, but don’t expect it to surge.
Experts say growth will pick up next year, but not by much. For that, blame China.
The world’s second-largest economy is slowing down, and it’s holding everyone else back.
A slew of new forecasts out from the OECD, the International Monetary Fund and The Conference Board broadly agree:
China’s economy will fall further in 2016. The U.S. will stay about the same — in a “good but not great” state. Europe will improve modestly, but still be lackluster.
India and other emerging markets will be the superstars.
“The global economy is stuck in a holding pattern,” says Bart van Ark, chief economist at The Conference Board.
It all hinges on China in 2016
The Conference Board forecasts the world economy will grow by 2.8% next year, a slight improvement from 2.5% this year. The OECD is a bit more optimistic — it projects 3.3% GDP next year and 2.9% for 2015.
The key is China.
Almost no one believes China’s official government data on growth, which indicates a minor blip right now. But the broad consensus is that China is having a “soft landing.”
“The good news is this is not a hard landing,” says van Ark. “A lot of the heat has already been taken.”
China buys a lot of raw materials from other countries such as oil and copper. If the worst has already happened with China’s slowdown, it will enable the rest of the world to rebound and move on in 2016.
U.S. consumers have to keep spending
U.S. consumers and businesses are the other critical factors to keep the economy pumping. Americans have been enjoying cheap gas prices for about a year now and they have been spending more as they become more optimistic about the future.
But U.S. businesses are still hoarding cash. They aren’t investing much in the future. Until they do, the economy — and the stock market — will struggle to get much stronger.
India and parts of Africa continue to see pick up as their populations grow richer, but they simply aren’t big enough players yet to lift the whole world enough.
Even the modest predictions might not come to pass in 2016. Both the IMF and OECD had to slash their 2015 forecasts.
For now, the economy is stuck in low gear — what one expert dubbed the “Twilight Zone” — It’s growing, but at a jog, not a sprint.
