Game of unknowns for businesses in 2016
- By Nuno Fernandes
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E-mail Shanghai Daily, February 19, 2016
Slow growth in Europe
Global economic growth in 2016 will be above 3.5 percent (relative to 3.1 percent in 2015). However, this is slower than was previously expected earlier in 2015.
Growth in 2016 will be uneven too. Emerging markets will again grow faster (close to 4.5 percent) than developed markets (more like 2 percent). And big differences will remain between developed countries, with the US growing strongly while the EU is once again the laggard, dragging down the rest of the world.
A group of five countries will be responsible for 75 percent of the world economic growth in 2016 in actual dollar terms: China, the United States, India, the United Kingdom and Germany. And Brazil and Russia, both in the middle of deep recessions, will be the biggest contributors to the world's slowdown (excluding these two countries, the world would grow 0.5 percent faster).
Except for Latin America, Europe as a whole will be the slowest growing region of the world, way below the US, other advanced economies, and most emerging markets.
It is clear that European leaders were incapable of dealing with Europe's economic health in 2015. European institutions have little accountability and no proper performance measures. The refugee crisis was one example of its lack of coordination and accountability, which is hurting European growth. In addition, the European Commission's current investment plan is likely to have little impact.
But Europe could help itself more by doing a few new things in 2016. First, it should reform product and labor markets so that bigger European corporations can compete with their US and Chinese counterparts.
Second, it should give more thought to developing European capital markets. Currently the number of initial public offerings (IPOs) on the continent is very low and only very large companies proceed to IPOs. European corporations, in particular SMEs, are in need of fresh capital. Better functioning capital markets, and less reliance on bank credit, would ease the path for these companies.
Finally, Europe should focus on reindustrialization. High oil prices in the past decade have resulted in a massive transfer of wealth from consumers to producers.
This trend slowed down in 2015, and it will likely continue to do so in 2016. Lower oil prices will also raise fresh questions as to whether shale oil has the potential to reshape the global economy, increase growth, and boost energy-intensive industries in developed markets. The re-industrialization imperative in Europe is here to stay.
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