World growth is looking fragile.
Oil prices are still hovering in the $30 per barrel zone — down from triple digits in the summer of 2014. China is arguably in a stock and debt meltdown and some analysts fear the US is at risk of another recession.
All of which are having a knock-on effect on emerging markets and developed economies alike.
It is for these three main reasons that the chief economist at one of the Britain’s largest fund managers Schroders has cut his forecasts for global growth for 2016.
Keith Wade has now estimated that global growth will be at 2.4% for 2016, down from 2.6%. Here’s what he said in a note sent to Business Insider:
“We have trimmed our forecast for global growth to 2.4% for 2016 (previously 2.6%) as a result of modest downgrades to the advanced and emerging markets (EM).
“The inflation forecast for 2016 has also been reduced for the advanced economies to reflect the lower oil price profile. Emerging market inflation is, however, higher largely a result of currency depreciation and administered price hikes.
“For 2017, our forecasts are little changed, with growth strengthening modestly largely as a result of more stable activity in the emerging markets.”
Today, ratings agency Moody’s placed China’s sovereign rating on watch negative, suggesting a one-in-three chance that the group may downgrade the nation’s Aa3 rating in the months ahead.
Moody’s provided three reasons behind the decision: weakening fiscal metrics, a continued fall in reserve buffers due to accelerated capital outflows along with uncertainty about authorities capacity to implement reforms, something the group believes are required to address imbalances in the economy.
Oil prices are crashing again today by nearly 2% and is at $33.75 per barrel. This is a far cry from over $100 per barrel a year and a half ago.
And because of low oil prices, some analysts like Jason Schenker, president and chief economist at Prestige Economics warns that the US is at risk of a recession.
“Oil prices simply aren’t going to rise fast enough to keep oil and energy companies from defaulting,” Schenker told Business Insider last month.
“Then there is a real contagion risk to financial companies and from there to the rest of the economy.”
According to Schenker, this means the US economy will dip into a recession either at the end of 2016 or the start of 2017.