From political and economic stability in Greece to unpredictable energy prices, the world will face a number of economic challenges on many areas in 2016. As the U.S Federal Reserve starts to tighten its monetary policy, many countries in Europe are struggling to manage debt and migrant crises, and emerging world economies are becoming more fragile. This has sent economic scientists into panic, many predicting a major economic crash in 2016.
The global economy could be doing much worse than earlier thought. The dwindling oil prices and weak currencies are some of the things that may force many economies are around the world come crashing down. Apart from China, emerging economies like Turkey, Thailand, South Africa and Brazil will be the real cause of concern in this year’s economic crash. Considering their high level of short-term debts, these countries, among others, will become vulnerable to currency crisis this year. But why are many experts predicting an economic crash this year? Here’s why;
The Chinese Syndrome
Just like Japan, Europe is facing a lot of problems around difficulty in absorbing immigrants, aging population and slow productivity, factors that have led to serious economic effects. As the year progresses, weak currencies and low oil prices are continuing to put these countries on positive growth trajectories. However, this is only for the foreseeable future. On the other hand, the Chinese government suffered a big blow when it failed to handle a collapsing stock market, something that dented its credibility and raised questions about how well it is prepared to manage the ongoing slow economic growth. Even though the Chinese government has put certain measures in place to alleviate any immediate crisis, the challenges still remain formidable.
Besides the collapsing commodity prices and the slowing Chinese economy, many emerging economies have also become quite fragile this year, with good examples being Brazil and Russia. With Brazil’s massive dollar corruption scandal deepening by the day and the plummeting oil prices staggering Russia’s economic growth, 2016 will test these economies even further. Can the U.S economy continue to be on the recovery lane even as other economies continue to register minimal growth? At the moment, all signs point that advanced economies like the U.S economy will continue to heal from the financial crisis, even though they will still suffer from the hangovers due to high debt levels. 2016 still promises to be a quite year all the same.
Emerging economies are unhappy about the economic crash in their own ways
The situation is quite different in other emerging economies like South Africa, Brazil and Turkey because they are financially vulnerable. Their economies are crippled with large amounts of short-term dollar-dominated loans that they find difficult to service as the dollar strengthens. Every unhappy emerging economy is unhappy in its own way. In Turkey, for instance, the problem is largely fueled by geopolitical uncertainty centered on the Syrian conflict. In Thailand, it is as a result of urban-rural divisions and uncertain successions. The situation in South Africa is caused by labor unrest and weak prices of commodities.
The oil pit
Another reason why many experts predict an economic crash this year is the oil pit. One of the forces that will change the global economy is the long-term oil crash that will send many economies around the world to their knees. The price of gas is also expected to rise due to high storage expenses. That means that both the consumer and the industry will lose even though this isn’t expected to last the whole year. Still, it will deepen the wreckage in many economies, both emerging and established ones.
The US industrial recession
The US industrial recession is not offering any hope in the near future. The US manufacturing industry fell at its fastest rate in six years. When manufacturing stops, what will follow is massive job losses as thousands of people will get laid off. A recession in the service industry is likely to affect the world’s biggest economy as it will result to unemployment, leading to a situation where people cannot afford basic services. Just like in the U.S, manufacturing in the UK and China has also contracted significantly, probably due to the falling value of the Euro.
The American stock market also got off to its worst ever start of a year. Britain is also facing a combination of new threats to its economy as markets abroad crumble. This explains how fragile the situation of big economies can get if others around them fail.
It is quite evident that 2016 will not be a happy year for many economies around the world. Many countries around the world are fighting many obstacles to keep their economies afloat and attract investments. However, only a handful of these have managed to do so, painting a bleak picture of 2016.