On June 7, 2016, the World Bank announced that it has downgraded its 2016 global growth forecast from 2.9% to 2.4% due to “sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows.” Emerging and/or oil-exporting economies accounted for half of the revised forecast on difficulties to adapt to lower oil prices and in view of possibly negative consequences of a future rate hike by the US Fed. Not only the lack of economic growth could impact the global economy but it could also accelerate the migration flows towards Europe and aggravate the situation in countries of fragile stability.
“This sluggish growth underscores why it’s critically important for countries to pursue policies that will boost economic growth. (…) Economic growth remains the most important driver of poverty reduction,” reminded World Bank Group President Jim Yong Kim. This grim assessment of global economic growth could actually be questioned by better data originating from the United States economy. According to the latest FOMC statement, “growth in economic activity appears to have picked up.”
Although caution about the labor market may delay rate hikes by the Fed, therefore reassuring emerging economies for some more time, the Fed seemed to have a more positive view of global economic growth. Given that the US economy remains the main engine of global economy, concerns around the state of global growth may prove excessive finally. However, investors should also keep an eye on news from China and Japan of which Cyceon thinks it could decide the markets’ general mood for the near future.