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Global economy set to perform better than its angst meter implies, says S&P

January 2016

January 23, 2016 | 14:00 | Dubai

It’s been a turbulent start to the year for the global financial markets, the dominant trend being sharply falling equity prices, bond yields, and commodity prices. Does the markets’ dyspeptic start to the year presage a global economic downturn? Standard & Poor’s (S&P) doubts it. “Short-term market movements — and we’re only talking about three weeks here — are largely ‘noise’ when it comes to inferring longer-term trends,” said Paul Sheard, Chief Global Economist and Head of Global Economics and Research. “Of course, when an economic downturn does occur, it will be preceded at some point by the kind of market moves that have occurred so far this year,” he said.

“Recent market moves probably overstate the likelihood of a slump in global growth this year,” said Sheard. “Major central bank moves in December may have disappointed or unnerved markets, but monetary policy continues to provide a tailwind to economic expansion.” In the six and a half years or so since the global economy started to recover from the Great Recession that followed the global financial crisis, it has grown in real terms at an average of about three-and-a-half percent annually. We expect that trend to continue, penciling in 3.6% for global growth in 2016. The biggest (obvious) source of downside risk in the global economy, however, is China, because of its size, its hitherto high growth rate, and its manifest economic challenges. We expect real growth in China to continue to trend downward, but to end up at about 6.3% this year, after growing by 6.9% last year (and 7.3% in 2014). Growth in most of the developed world and even much of the developing world stands to be a bit higher this year than last, which adds up to a decent outcome for global growth. Excessive pessimism is probably not warranted, S&P said.

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