The International Monetary Fund (IMF) estimates real gross domestic product (GDP) growth for the world in 2016 will reach 3.5 percent, slightly better than was projected this year. What are the factors impacting growth? And how will our major trading partners perform?

The Factors

Abundant low-cost American energy benefits American consumers and manufacturers, especially producers of iron and steel products, chemicals, plastics, resins, synthetic textiles and materials, and agricultural chemicals. And since gas-fired plants are an important source of electricity, lower electricity prices will benefit virtually everyone.

As a result, low cost energy is projected to have a long-term positive impact on U.S. economic growth. And as the United States becomes an ever-greater energy producer, Russia, Saudi Arabia, Venezuela, and other relatively large energy producing countries will continue to be negatively impacted.

In the short-term, however, the recent dramatic drop in crude oil prices — which the U.S. Energy Information Administration says has brought the spot price of a barrel of Oklahoma West Texas Intermediate down from $107.95 on June 20, 2014 to 37.64 on December 7, 2015, just prior to this article going to print — has caused U.S. oil producers to scale back production and terminate employees.

The precipitous drop in oil prices, instability in the Middle East, weak commodity prices, fragile world demand, and dozens of other factors have put negative pressures on U.S. and global economic growth.

The precipitous drop in prices also has caused uncertainty, volatility and negatively affected stock markets. Plus, greater instability in the Middle East, weak commodity prices, fragile world demand, and dozens of other factors have put negative pressures on U.S. and global economic growth.

In turn, American GDP growth is anticipated to slightly exceed 2 percent in 2016 and 2017, according to the Federal Reserve’s median rate.

The China-Canada Connection

The U.S. trade deficit with China increased $5.5 billion to $85.2 billion in the third quarter of 2015. U.S. exports decreased $0.4 billion to $42 billion while U.S. imports from China increased $5.1 billion to $127.2 billion, the Bureau of Economic Analysis says.

China continues to struggle with decreasing domestic growth, which the IMF projects at less than 7 percent in coming years. For most countries, growth in the 6 percent range is considered outstanding. However, for China, the dramatic drop from double digits experienced not long ago feels like a recession to many Chinese, some analysts say.

In turn, reduced Chinese demand for energy and commodities has negatively affected commodity exporters around the world, including Canada.

Due to this and, more specifically, to reductions in mining, quarrying, and oil and gas extraction, and to a much lesser extent, manufacturing, Canadian economic growth contracted 0.5 percent in September, according to the latest available data from Statistics Canada. This contraction followed three consecutive monthly increases in GDP.

Canada’s overall international trade activity was down in October. Exports decreased 1.8 percent and imports declined 0.8 percent, Statistics Canada reports. As a result, Canada’s merchandise trade deficit with the world widened from $2.3 billion in September to $2.8 billion in October, the 14th consecutive monthly deficit. Weakness in Canadian exports were concentrated with the United States.

The IMF projects Canada’s GDP growth rate to be well under 2 percent in 2016 and to hover or slightly exceed 2 percent through 2020.

Mexico Outpaces Latin America

Solid domestic demand, which is offsetting the impact of lower oil prices, is a major factor in Mexico’s current economic growth. Moving forward, greater anticipated U.S. demand is projected to boost Mexican exports to the United States, and in turn, increase Mexican economic growth. As a result of this and other factors, the IMF projects Mexican GDP to come in slightly under 3 percent next year, then to hover just over 3 percent through 2020.

For some time, Latin America experienced a period of prosperity primarily based on strong demand for commodities by China and other Asian countries. This pushed commodity export prices up as well as the volume of trade benefiting Latin America. But recent slower economic growth in China and its neighbors has resulted in a decrease in commodity prices.

Due to this and other factors, the economic forecast for Latin America and the Caribbean has been downgraded. Thus, the IMF projects the region’s GDP growth to reach less than 1 percent next year and to hover around 2 percent with a slight increase to approximately 2.75 percent by 2020.

In The Spotlight

India Grows Despite Problems

The Indian government is often characterized as bloated and relatively inefficient. Many other problems exist as well. As stated by Doug Bandow, Senior Fellow at the Cato Institute, a Washington, D.C. think tank, Indian “deficits continue, fueled by subsidies—which increased at an astonishing 19 percent annually between 2007 and 2014—and infrastructure spending. Banking remains state-directed. Privatization has disappointed. The law still discourages creation of family firms.”

According to Bandow, many reformers worry that Prime Minister Narendra Modi missed his chance to transform the economy during the honeymoon period immediately after his election triumph. Nevertheless, Indian’s economy continues to grow at a relatively quick pace.

Much of this success is due to India’s past liberalization of its telecommunications services and equipment manufacturing sectors. India’s more recent information technology success and the innovative development of e-commerce companies have pushed the country’s growth upward.

Consequently, the IMF predicts India’s GDP growth will reach approximately 7.5 percent next year and continue to rise to 7.75 percent by 2020.

This article appeared in Global Impact, a Great American Insurance Group publication.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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