These are the predictions of PwC economists for 2016

PwC economists traditionally mark the entry into the new year with predictions for the year ahead.

1. Smooth sailing for G7: The weighted GDP growth of the G7 group is expected to exceed 2%, which would be the fastest growth rate since 2010. In contrast, the growth in the emerging economies group E7 will slow down (but will still be faster than the G7 group). In this group, the Brazilian and Russian economies will shrink, China will slow down, and India will become the star of this group.

2. Geopolitics replaces economics at the top of policymakers’ agenda: Three geopolitical themes will continue to dominate the headlines. The first is the migrant crisis in Europe, which may calm down during the winter months but could flare up again in spring. The second is the international community’s response to the crisis in the Middle East. The third is the referendum on the UK’s membership in the European Union.

3. Lower commodity prices will persist in the markets: This is good news for most businesses, households, and policymakers in economies that import raw materials, but it poses a challenge in countries that heavily depend on their exports. PwC economists also provide more detailed predictions for the upcoming year. John Hawksworth, chief economist at PwC UK, briefly explains:

– We expect the recovery in the US to accelerate in 2016, while the United Kingdom (UK) will continue to grow under the greatest influence of consumption. Additionally, the end of the crisis in the Eurozone should at least begin to be in sight. However, another tough year awaits the once-powerful BRIC countries, with India significantly standing out.

More details:

– The US will have the highest GDP growth in the G7 group:  The US economy is expected to grow by nearly 3%, contributing about two-thirds of the total growth of the G7 group in 2016. The US is also expected to continue creating an average of about 200,000 jobs per month, thereby supporting continuous consumption growth. However, the US will not easily claim the title of the fastest-growing economy in the G7. Its main competitor will be the UK, which is expected to grow by 2% to 2.5%.

– Increase in interest rates in the US and UK in 2016: The Federal Reserve (FED) raised interest rates last December for the first time since 2006. PwC economists expect that they will continue with gradual rate increases in 2016. To prevent larger negative global shocks, the Bank of England is expected to do the same at some point during the year. Unlike banks in the US and UK, the European Central Bank, the Bank of Japan, and the People’s Bank of China are expected to maintain an accommodative monetary policy in 2016.

– The end of the crisis in the Eurozone: Peripheral economies will grow faster than major economies for the second consecutive year (see Figure 2). The crisis in Greece could flare up again, but it should not spread to neighboring countries. Therefore, PwC economists expect that 2016 will mark at least the beginning of the end of the broader financial crisis in the Eurozone. Since most of the instability in peripheral economies is under control and structural reforms are underway, it is very likely that the Eurozone’s GDP will grow by approximately 1.6% in 2016, which would be its highest growth rate since 2011.

– India will become the star of the E7 group: We expect India to grow faster than China for the second consecutive year, achieving a real GDP growth of approximately 7.7%. India will continue to reap the benefits of the latest reforms. Last year’s interest rate cut from 8% to 6.75% by the Reserve Bank of India will contribute to this year’s increase in consumption and investment. Foreign direct investment in the underdeveloped Indian manufacturing sector is also expected to increase as a large number of restrictions on foreign investment have been lifted.

– Growth of China’s GDP falls to 6.5%: It is likely that the slowdown in China’s economic growth will continue as rebalancing is underway. The gradual slowdown in production and export growth will also continue. However, Chinese business leaders will continue to shift towards higher value-added manufacturing areas. We believe that overseas investments in Chinese companies will increase to achieve this, particularly evident in the acquisition of companies engaged in new technologies and research and development. The internationalization of the yuan is expected to continue in line with new steps towards capital account liberalization, including the removal of restrictions on initial public offerings. Finally, although PwC economists do not foresee a recession in their scenario, it remains a significant negative risk that businesses should pay attention to, as it could have particularly strong secondary effects on some Southeast Asian economies.

– Sub-Saharan Africa (SSA) will add “another Australia” to the world population: The population of SSA is expected to increase by more than 25 million people in 2016, which is more inhabitants than the entire population of Australia. This increase is in line with previous trends, as the population in SSA has been growing by more than 20 million people annually since 2006. Figure 3 shows the country breakdown, indicating that only Nigeria will account for just under 20% of the total population growth in SSA in 2016.