Economic Outlook 2016

January 4, 2016

As you will see from previous posts, there are few surprises. The comments in the post of January 2015 still stand: global growth will be slow, at best. Too many countries have too many problems for a return to the relatively high rates of the past. There is no particular reason to be impressed with the reliability of these forecasts since the evidence and logic are so clear. Wishful thinking has no place in this discussion. The goal is to be neither optimistic nor pessimistic. The goal is to be correct. And while the forecast may be sobering, the truth is always helpful, or can be.
Mature industrial states, like Europe and Canada, will have painfully slow growth. Canada of course is particularly sensitive to low energy and commodity prices. China continues to struggle to both sustain growth and avoid volatility. India is making only modest headway; other newly industrial states are coping with the consequences of unsustainable boom. Russia is stuck in the twilight zone of personality politics. Most of these governments and their electorates are overwhelmed with the complexity of the challenges before them. Moreover, given this complexity, the economic environment becomes ever more unpredictable. As a result, the financial markets remain inherently volatile.
The American economy is doing relatively better than most other states and this helps all of us. But its challenges remain very high. The government is perpetually on the edge of paralysis. Cheap oil is a bonus stimulus, but its effect cannot be counted on long term. While U.S. employment growth is reasonable, many of these new jobs are in lower wage service industries. Moreover, this relatively adequate growth is still being fueled by abnormally low interest rates. As those rates rise, the effect is uncertain. Maybe it will be accommodated reasonably well; maybe it will chill growth substantially. There is no way to know, because, as noted before, the circumstances are unprecedented. So where does this leave the individual?
The answer is equally clear, if not exactly welcomed. If the overall environment is going to be difficult for the foreseeable future, then the onus is on individuals to look to their advantage. This means pursuing one’s career more aggressively. It means having a detailed plan to get promoted. It will often require using your own resources and time to invest in the development of your skills. In addition, you will have to be a person of ideas, new ideas. It will no longer be enough to repeat the ideas of others, or those you learned years ago in a classroom. If you relax your commitment and focus, you will dramatically increase the odds of a nasty surprise.
Moreover, your investments will have be chosen with exquisite care, forcing you to turn your back on the herd. And if you spend almost all of your income on your current consumption, then you are skating on the thinnest of ice. Warning, warning, danger, danger.