Risks and opportunities abound in 2016

WE EXPECT the global outlook for 2016 to be better than 2015 led by the eurozone and Japan, while many emerging countries are likely to stabilise, albeit at low levels. The US could slow down due to constraints set in place by several macro factors while Australia and Canada would be sub-par due to lower commodity prices. The UK is likely to remain fairly robust as real wages rise against a tighter monetary policy backdrop. China should avert a hard-landing scenario on the back of further policy easing, moderate fiscal expansion with some infrastructure activity along with sustained consumption spending and services, while the property sector has seen significant inventory depletion.

Putting that together, global growth would be subdued and not trigger a surge in inflation with prices of tradeable goods still seeing some price pressures. Commodities should see a year of normalisation resulting from supply rebalancing on cutbacks in investments and production. The US and the UK could see inflation rising towards the 2 per cent handle while that in other parts of the developed world should remain low, even for the case of emerging markets and China.

Monetary divergence will remain pronounced with the US Fed likely to further tighten its reins, but at a very gradual pace followed by the UK sometime in H1 2016. The Bank of Japan is expected to remain on hold while the European Central Bank (ECB) may be compelled to be more assertive. Within the emerging markets where interest rates are high while inflation starts to taper off or where disinflation persist, it could pave the way for more cuts for China, some other Asian countries and Brazil.