Global Economy – The First Half
Generally speaking, the first half of 2016 has been uneventful. There has not been any major news especially in the financial market. Most of the things that have happened were predicted as the year began. In the United States, first quarter earnings were generally in line with the analyst estimates. The price of oil has almost stabilized. Today, oil price is in a bullish mode as investors anticipate a normalization in supply. Key strikes in leading producers such as Nigeria have fueled the rise in price. The second half of the year is expected to be very important. In this article, I will highlight a few risks that will impact the global economy in the second half of 2016.
#1 – Risk of a Brexit
Is the Brexit bad or good for the economy? Many analysts believe that the United Kingdom is better if it remains part of the EU. In fact, the leaders of most companies in UK have already issued a warning on the risks posed by a Brexit. Siemens and Airbus have already issued job warnings in case a Brexit happens. However, most residents of UK seem to be leading towards an exit. Two recent polls have showed a clear win for the exit team. A poll by Telegraph showed that most UK residents are fed up with the EU. Another poll by ICM indicated those in favor of a Brexit at 45% against their opponents at 42%. The referendum later this month poses a major global risk especially if the Brexit happens.
#2 – Trump
On November 23rd, the United States will go to the polls to determine the 45th president. The leading candidates are Donald Trump (R) and Hillary Clinton (D). This will be the most different election in American history. For instance, it will be the first time that a person with no political history has become the Republican candidate. It will also be the first time that such a person goes head to head with a woman. A win by Trump will have significant impacts in the global economy. This is because of the radical policies he plans to implement such as ending the NAFTA trading agreement and deporting illegal immigrants.
#3 – Risks of a Grexit
In 2015, the Greece issue was one of the leading risks to the global economy. Greece was at risk of defaulting its debt obligations. This would have led to its exit from the European Union. The exit of Greece posed a very major risk to the global economy especially in the Eurozone area. This is because its exit would cause instability among the member states. Ultimately, Greece accepted the terms laid by the IMF and the EU. Unfortunately, Greece is not out of the woods yet. The country has not made significant strides in solving its debt problems. In the second half of the year, unless concessions are made, Greece could default which will lead to an exit coming after the Brexit vote.
#4 – Jihadi Terrorism
According to Economist Intelligence, the rise in Jihadi terrorism continues to pose significant risks to the global economy. In the recent pasts, we have seen key attacks in Lebanon, France, Belgium, and Indonesia. In Egypt, a Russian airliner was recently downed by the terrorists. It is also believed that terrorism was involved in the recent missing of EgyptAir. In Africa, the Jihadi militia is in an expansion. The same is the case in Europe and the United States. An increase in terrorism activities will lead to increased investment risks which will lead to a slowdown in the economy.
#5 – A Hard Landing for China
In January, I made a forecast of 2016 where I predicted that China will have an important role in the global economy. The continued weakening of the Chinese service and manufacturing sector coupled with the increase in the country’s debt stock are risky for the global business. The country’s debt is now 240% of GDP. These factors have led to increased risks that a hard landing could be probable for China. This happens when growth drops by 2% or more compared to the previous year. In the past, the Chinese government has put in radical measures to prevent a fall in the financial market. Analysts believe that the government is now running out of options. A fall in the Chinese markets will have a spiral effect to the global economy because China is the largest producer and consumer of commodities.