The United States
At over
$18 trillion, the United States is the largest economy in the world.
Despite China’s rapid ascension in the global economy, the U.S. economy
keeps the world spinning.
Besides being home to the biggest financial
hub in the world, the U.S. economy is a leader in a number of facets in
the global landscape. With a GDP per capita
of over $50,000, the U.S. economy is all about consumer spending. That
being said, many of our favorite products we consume have likely been
manufactured abroad and imported. The U.S. continues to be one of the
largest importers of foreign goods, strengthening trade which stimulates
the global economy. Further, the United States is a significant
business investor. In 2014, net foreign direct investment from the U.S.
economy equaled
$225 billion. This says the amount of capital outflow was far greater
than the net inflows of investment. Through the economic turmoil of
early 2016, the U.S. economy will be looked to as a stable source
stimulating the global economy.China
Given
how poorly the Chinese economy has performed recently, it may seem
foolish to believe China will perform well in the global landscape of
2016. The 10% plus growth the economy had been experiencing has slowly
waned and official expectations
for 2016 hover around 7%. Despite the bearish expectations surrounding
China, the second-largest economy is not on the brink of a financial
crisis. In other advanced economies, growth rates of 7% would be viewed
with jubilation. To put this in perspective, advanced economies target 2
to 3% growth for a given year. As heavy industry and investment growth
have slowed significantly, Chinese consumption and services have
remained strong. The challenges which have plagued China to this point
in 2016 come amid a transition from an export-led economy to a
consumption based economy. It can’t be said with certainty whether China
can overcome these obstacles in 2016, but when they do, they legitimize
themselves as a more stable economy.
India
Even
through the current economic storm, the South Asia region, led by
India, remains a bright spot in the global economy. The World Bank
projects India to usurp China as the fastest growing large economy in
Asia with robust growth projections
of 7.8% in 2016. Behind the popular BJP party, Prime Minister Narendra
Modi has put in place legitimate resources to tackle the country's
greatest problems. The central bank has cut interest rates multiple
times to reduce the country’s chronically high inflation. Compared to
most other major developing countries, India has positioned itself to
withstand the near term volatility. New reforms have supported
legitimate domestic business cycles and reduce external vulnerabilities
in the global financial market. Progress on infrastructure improvements
and government efforts to boost investments in infrastructure are
expected to offset the impact of higher U.S. interest rates and strong
U.S. dollar. As the economy becomes more interconnected, marginal
improvements in large economies have profound effects on the global
stage.
European Union
Moving
away from Asia and towards Europe, the European Union has been
performing quite unfavorably since the 2008 Financial Crisis. As the
economy continues to wane, experts have predicted an end to the Eurozone
if another financial crisis were to strike. That being said, there
remain a few bright spots amongst the members that make up the European
Union.
England has viewed economic turmoil throughout the EU as a drag on their economy. This has caused trepidation of a looming Brexit
from the EU in 2016 and rightfully so. During the recovery from the
financial crisis, certain nations have been consistent sources of
strength, such as the United Kingdom and Germany. As inflation and
employment stabilize in England, the country is pursuing raising
interest rates within the next two years.
By raising the interest rates, the pound will remain relatively
competitive when compared against the US dollar. This can also be
beneficial too for England exports to other regions in Europe. While a
higher domestic currency typically means declining exports, England’s
biggest importer happens to be fellow EU members in Europe.
The
stalwart of the European Union, Germany carried Europe through 2015 and
is expected to do the same in 2016. Germany’s growth has been driven
by strong domestic demand as imports outweigh exports. In 2015, Germany
experienced accelerated growth in private consumption, government
spending, exports, and imports. Consequently, the nation can operate
with strong labor union and high-cost workers, which further boost
employment and the overall economy. After a record year in terms of GDP
growth, Berlin expects the German economy to expand into 2016 on the
back of strong consumption and services. Since Germany is one of the
largest economies, its success will have widespread implications for the
European Union and on the global economy
The Bottom Line
Plunging
oil prices, financial markets and downturns in China have led many
experts to believe the remainder of 2016 will follow this trend. If that
is the case, growth in the global economy will be supported by some of
the world’s largest economies. In times of economic turmoil, investing
in emerging markets becomes inherently riskier and less appealing. As a
result, advanced economies are viewed as safe havens stimulating the
global economy. In any case, the Federal Reserve is unlikely to pursue negative interest rates, even if the economy goes into recession again.
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