Global economy likely to grow by 3.4% in 2016: EIU

THE global economy is expected to grow by 3.4 per cent in real terms this year, but China's slowdown and continued global pressure on prices could undermine the benefits brought by the US and European recovery, according to the Economic Intelligence Unit (EIU).

In its latest report entitled "Industries in 2016", EIU said the outlook for advanced economies is steady, expanding by a little over 2 per cent in real terms "although the threat of terrorist atrocities and an immigration backlash cannot be discounted".

It expects Brent crude oil will average US$53 a barrel in 2016. The US economy will grow by 2.4 per cent, boosted by strong labour and housing markets, and recovering government spending.

Businesses in the European Union will benefit from loose monetary policy, although the risk of a Greek exit from the eurozone lingers. In Japan, "Abenomics" will struggle to snap the economy out of its doldrums, in the face of population ageing.

For the emerging economies, "scintillating growth" is not expected to return in 2016. It added that potential US rate hikes and still-depressed oil prices could cause volatility in certain markets but a full-blown crisis is "improbable". Two of the BRIC countries, Brazil and Russia, are already flagging. China will do far better than these two, but a lasting slowdown - and an entrenched anti-corruption campaign - will affect demand for everything from cars to commodities. India is a bright spot, offering 7.4 per cent growth, but reforms will be needed for it to fulfil its potential.

According to the EIU, many worries about the global economy are overblown. Despite its problems, China will expand by 6.5 per cent in 2016, as services outpace industrial output and investment accelerates. Unlike in past crises, non-OECD (Organisation for Economic Co-operation and Development) economies overall enjoy ample foreign reserves and liberal exchange rate regimes: the risk of a wholesale emerging market meltdown is remote. Non-OECD economies will grow by 4.5 per cent in real terms in 2016.