Depression Reigns Financial and Commodity Markets

8 february 2016

The World Bank has revised down its 2016 forecast for global GDP growth to +2.9% and for Russia’s GDP growth to -0.7%. However, political correctness is keeping global agencies from reflecting the full negative impact of political factors (especially conflicts) on business, trade and investments.

The reserved message from agencies is that everything is going to be ‘slower and worse’ whereas depression in the financial and commodity markets and falling GDPs in a large number of countries are suggesting a longer low-growth period, slowing investments down. Experts of the Analytical Center talk about these and other trends in a new review of the current trends in the global economy. The review is titled ‘Taking the Pulse: The Situation in the Global Stock Markets. Focus on: UN Human Development Report 2015.’

Different economies around the world are exhibiting different trends at the moment. The Russian economy is contracting (preliminary estimates of the Federal Statistics Service suggest in 2015 GDP fell by 3.7%) while the US economy is growing (averaging +2.5% on an annualized basis over the past two years), the EU is demonstrating rather lackluster performance (averaging +1.5% on an annualized basis over the past two years) as is India, China’s economic growth is slowing down (down to +7% on an annualized basis in Q1 through Q3 2015), and Brazil’s economy is experiencing a serious downturn (-4.5% on an annualized basis in Q3, 2015)

In 2015, China’s economy expanded at the slowest rate in the past 25 years. The country’s GDP increased by just 6.9%. At the start of 2016 the Chinese stock indexes took yet another tumble, the third in the past 7 months. Most of the leading stock indexes around the world followed suite: The German DAX 30 fell by 11% between Jan 1st and Jan 15th, Russia’s MICEX and Japan’s TOPIX fell by 9%, the US’s S&P 500 lost 8% while the British FTSE 100 fell by 7%.

The American stock exchanges trade the stock of companies that operate in the majority of countries around the world, which means that whatever happens to the American indexes is a fairly good indication of the state of not just the US economy but the global economy in general. Major US companies whose shares are traded on the NYSE are doing better than the composite index and the bulk of the losses has been experienced by energy companies and by non-US companies at large.

Thus the global economic growth in 2015 was not exactly spectacular and 2016 has brought little good news for the global economy and international relations. The rising tensions in the Middle East have not yet affected the global oil market but there are rising risks of conflict in the long term. The situation in the global oil market remains unfavorable for the exporters but they are still willing to incur huge losses (see Review No 3) to try and hold on to their contracts. Stabilization in political disputes and the austerity demonstrated by parties to the conflicts could be for the betterment of the global economy.

For more see Taking the Pulse: The Situation in the Global Markets. Focus on: UN Human Development Report 2015

For other reviews go to Publications