Emerging markets have given the global economy most of its muscle since the recession ended in 2009. But in 2016 rich countries will account for their largest share of global growth in this decade. Many emerging markets, including China, will be content to avoid a crisis.
The famous BRICs are in a sorry state. Brazil’s government has been both incompetent and corrupt. Russia’s has been no better, with a dose of military malevolence thrown in. Both economies will at best stagnate in 2016—which would be an improvement after both plunged in 2015. Such are the diminished expectations from these former stars.
China will perform reasonably well in 2016—if you believe the government’s numbers. By that reckoning, GDP will rise by around 6.5%. The reality almost certainly will be lower. China is mired in debt and has managed its currency and stockmarkets badly, sending shocks through the global economy. The odds of a genuine crisis in China in 2016, triggered by some combination of soaring loan defaults, bust banks and collapsing investment, are at least one in three, the highest in a generation. And a crisis in China would mean a crisis for the world.
India looks perkier: it will grow by more than 7%. But that is worse than its average of 8.5% growth between 2005 and 2010. India will crow that it has pushed past China in the growth league, but it has far to go: when China’s economy was India’s size ten years ago, it was growing by nearly 13%.
This improving outlook for the rich economies could evaporate if the emerging markets succumb to another financial crisis. They are prone to panic when America’s Federal Reserve raises interest rates; the mere hint of a Fed rate rise in 2015, and the stronger dollar it spawned, sent emerging-market currencies plunging. Although American rates will move higher in 2016, the rises will be small and infrequent, to cushion the risk of shocks.
Even that approach carries dangers—for example, an even fizzier dollar pulling even more investment capital out of emerging markets. Fragile developing economies (keep an eye on Venezuela) could be pushed to the brink. Nothing quite like the emerging-markets crisis of 1997-98 seems likely, since most countries have built up their foreign-exchange reserves and allowed their once-brittle currencies to float. But countries like Turkey and South Africa are still at risk, and companies that borrowed heavily in foreign currencies in the past decade could find their finances strained if local sales sag and their currencies depreciate.
Commodity producers, at least, will have reason to be a little less gloomy. The prices of energy, metals and farm products, which fell by 30-50% between 2011 and 2015, will rise in 2016; the price of oil will climb by around 10% from a year earlier. But that will still leave crude oil at barely half what it was just a few years ago, giving consumers cause for cheer.
The world economy hasn’t managed growth of more than 4% since 2010. Save for America, 2016 will be another year of repair, recovery, reform and risk for most countries. The prospect of a synchronised upturn that reinforces growth globally, built on steady consumer demand, business confidence and political stability, will remain out of reach for another year.