The economic risks predicted in 2016 foretell that another tough economic year is ahead. Fiscal crises are brewing in key economies, asset bubbles, and structural unemployment and underemployment are among some of the global economic risks the world is facing. Together, these risks could result in another economic slowdown with knock-on effects on employment and, ultimately, social in-stability. Risks emanating from China, in particular, have heightened the probability of another financial crisis where continued credit-based measures are required to address concerns over its slowing economy.

 

Table 1: Top Five Global Economic Risks by Likelihood and Impact, Global

 

	In terms of Likelihood	In terms of Impact
1	Large-scale involuntary migration	Failure of climate change mitigation and adaptation
2	Extreme weather events	Weapons of mass destruction
3	Failure of climate change mitigation and adaptation	Water crises
4	Interstate conflict with regional consequences	Large-scale involuntary migration
5	Major natural catastrophes	Severe energy price shock

 

Source: WEF Global Risks Report, 2016

 

It is anticipated that the European labour market could be under tremendous pressure owing to the high influx of migrants and asylum seekers from Syria and other political or economically conflicted countries. Global economic growth for 2016 and 2017 is expected to be a modest 3.4% and 3.6%, respectively. One interesting development for China is its inclusion by the International Monetary Fund (IMF) of the Chinese Yuan into the basket of currencies making up the Special Drawing Rights (SDR), joining the US dollar, the British Pound Sterling, the Euro and the Japanese Yen, to be effective from 1st October 2016. This will make the Yuan the third most powerful currency in the world. With its status as the world’s largest trading nation, China can now protect itself from US policy decisions and spill over effects from Quantitative Easing (QE).

 

Brazil is facing a recession and its inflation is expected to rise above the ceiling of the tolerance band (central band tolerance band) in 2016, reflecting an adjustment of regulated prices and exchange rate depreciation. Russia is expected to contract by 1% owing to low oil prices and other geopolitical factors. The above have resulted in the projection of a lower inflation rate for emerging markets of 5.1% down from an estimate of 5.6% in 2015. Advanced economies are expected to experience meagre increase of 0.9% for inflation in 2016.

 

In the first 6 months of 2015, world trade took a slump with much reduced volumes of imports and exports in major emerging markets such as China, Brazil and Russia leading to a decrease in the value/ prices of commodities. In 2016, it is anticipated that further contractions will be seen/ realized for world trade with the full recovery of commodity prices (specifically crude oil) only projected over the 2018/19 period.

 

An estimated 201 million people were unemployed in 2014 globally, over 1.2 million more than the year before and a staggering 31 million more than before the start of the global crisis in 2007. Global unemployment is estimated to have increased by 3 million in 2015 and expected to further increase by 8 million in the four years following this. The problem of unemployment remains disproportionately more pronounced among the youth, especially young women. An estimated 74 million young people (aged 15–24) were looking for work in 2014.

 

In December 2015, the US Federal Reserve raised interest rates by 25 basis points citing improved job market (the first in nearly a decade). Rising interest rates are a risk for any investor who owns shares, bonds or Exchange Traded Funds (ETF). The reason is that share/bond prices fall when market rates rise as investors seek returns on risk free deposits.