Opportunities abound despite subdued global market

By James Webber, regional director, head of Midlands and Wales trade and working capital, Barclays

IN RECENT months the global economy has remained subdued with turbulent times across the globe causing uncertainty in the market.

Growth in emerging markets and developing economies, whilst still accounting for over 70% of global growth, declined for the fifth consecutive year in 2015, while a modest recovery continued in advanced economies.

The US economy ended 2015 on a stronger footing than expected which provided needed reassurance to the uncertain global outlook. To follow this we forecast healthy growth of 2.2% in 2016 and for a steady growth rate to continue over the next few years, outpacing many other western countries.

This positive picture is supported by a robust jobs market, with unemployment down to 5% in February 2016, and rising housing prices providing the strength for the economy to overcome weaker growth overseas, a sharp contraction in its manufacturing sector and retrenchment in the booming oil industry.

Within the emerging markets in Asia, 2015 was a year of low growth, subdued inflation, weaker currencies and dovish central banks. We therefore forecast emerging markets in Asia’s 2016 GDP growth at 5.9%, falling from an estimated 6.1% for 2015.

Prospects of oil prices are remaining low for longer and are likely to result in improved current account balances and benign inflationary pressures. In particular in China, given the weak underlying growth and ongoing rebalancing, away from investment spending towards domestic consumption levels, we forecast growth rate to slow again to a GDP growth of 6% in 2016, well below consensus expectations and the government’s target of 6.5%.

Last year growth in China fell to its slowest pace since 1990, impacted by the slowdown in its manufacturing and construction sectors which was once the main growth driver. The sharp decline in Chinese assets, data confirming the slowdown in economic activity, and strong headwinds, all reinforce the need for more accommodative monetary and fiscal policies.

Over the next few years, we predict this slowdown will move China to a steadier rate of growth – we certainly do not predict the economic meltdown some economists are suggesting.

In contrast to China, key macroeconomic indicators point to India being on a path to gradual recovery with a forecasted GDP growth of 7-8% in 2016 making it set to become the fastest growing major economy. This is supported by the substantial room for fast catch up growth it boasts compared to China. The country is also making improvements to its trade potential to support this growth opportunity through greater openness to foreign direct investment, accelerated infrastructure advances and more effective administration.

Looking past the initial gloomy and uncertain picture dominating the current view of the global economy we still see great opportunities and potential value in the global market for UK businesses to expand in to. As well as those markets highlighted here you may be interested in finding out more about the potential in Africa which our article published tomorrow summarises.