General economic environment
Economic experts from international economic research and forecasting institute Oxford Economics1 are expecting global economic trends in the current year to again be weaker than those seen in the prior year. Despite recent more positive signs, the institute is projecting an increase in global gross domestic product (GDP) for the full year 2016 of only 2.2 percent2. Growth in 2015 was 2.6 percent. Oxford Economics is forecasting an increase in global industrial production (IP) of 1.7 percent, which is slightly below the figure of 1.8 percent achieved in 2015.
Once again, the main factors influencing the global economy are economic trends in the emerging nations, especially China but also Brazil and Russia. Growth in the United States remains consumer-driven, while industrial production continues to be weak, despite the situation in the oil and commodity markets having become more stable since the beginning of the year. The result of the British referendum on whether it should remain in the European Union (Brexit) will have hardly any impact on the global economy unless there is a global decline in consumer and business confidence which has a short-term impact on consumption and investment. Even if there is a deterioration in the state of negotiations over the next two years, the economic experts believe that a global decline in confidence is unlikely to occur.
In the EMEA region (Europe, Middle East, Africa), economists are expecting an increase of 1.6 percent in economic output, compared with 1.7 percent growth in economic output in 2015. Industrial production is forecast to grow by 1.1 percent (2015: 1.3 percent). There is a great deal of variation in the projected trends for individual regions. The forecasts for Germany and the eurozone are still relatively cautious. GDP in the eurozone is projected to rise by 1.6 percent, compared with an increase in 2015 of 1.9 percent. The forecast for GDP growth in Germany is 1.8 percent, compared with an increase in 2015 of 1.5 percent. In the view of the economic experts, the result of the British referendum on whether the United Kingdom (UK) should remain a member of the European Union has had only a minor impact in the current year on UK GDP. Economists are projecting GDP growth of 1.9 percent (2015: 2.2 percent). Nevertheless, great uncertainty is attached to the forecasts for the coming years, as these will depend to a significant extent on the progress, prospects and outcome of the negotiations between the United Kingdom and the European Union on the UK’s exit from the EU. Economic trends in the Middle East are expected to be steady, with GDP growth of 1.5 percent, but the forecast growth there is below the figure for 2015 of 3.6 percent. In Eastern Europe, a slight increase in GDP of 1.2 percent is expected (2015: 0.0 percent). The forecasts for Russia are much worse. Although the recent recovery in the oil price has brought some relief, economic sanctions are continuing to have an adverse impact on economic trends in the country in the current year. Economic experts are therefore expecting Russian economic output to decline by a further 0.7 percent, following a contraction in the economy of 3.7 percent in 2015. In 2016, industrial production is projected to fall by 0.1 percent, compared with a drop of 3.1 percent in 2015. In South Africa, Linde’s largest market in Africa, economic output is expected to rise by 0.1 percent, compared with an increase of 1.3 percent in 2015.
As in previous years, the economic experts are expecting the Asia/Pacific region once again to achieve the highest rates of growth. Based on country forecasts prepared by Oxford Economics, GDP growth in this region for the full year 2016 is projected to be 5.6 percent, the same rate as that achieved in 2015. The Chinese economy is forecast to grow by 6.6 percent in 2016 (2015: 6.9 percent). In China, expansionary monetary and fiscal policy and the construction sector will make a major contribution to growth. However, it remains to be seen whether this trend will be sustained over the next few years. Industrial production is forecast to rise by 6.0 percent in 2016, compared with IP of 6.1 percent in 2015. In addition to China, India is one of the main growth drivers in this region. GDP in India is projected to increase by 7.5 percent (2015: 7.2 percent). The economic experts are expecting industrial production in India to rise by 1.8 percent, which is lower than the figure for IP growth in 2015 of 3.2 percent. In Australia, the forecasting institute is predicting GDP growth of 2.9 percent (2015: 2.4 percent). This increase will come primarily from the expansion of the service sector, which generates around 70 percent of the country’s economic output.
In the Americas region as a whole, Oxford Economics is forecasting an increase in economic output in 2016 of 0.9 percent (2015: 1.7 percent). The main driver of this trend is the United States, where GDP growth is projected to be 1.5 percent (2015: 2.6 percent). Reasons given for this growth by the economic experts are an increase in net household income and a stable labour market. However, industrial production in the US is forecast to fall in 2016 by 0.8 percent (2015: 0.3 percent), because energy-related industries such as mining are continuing to suffer the effects of low commodity prices. A slight increase in manufacturing production is being forecast for 2016 in the US. In South America, economists are expecting the decline in growth to continue and are projecting a fall of 1.7 percent in GDP, following a drop of 1.6 percent in 2015. The main reasons for this are the ongoing unstable economic and political situation in Brazil, where GDP has fallen by 3.2 percent in 2016 and fell by 3.9 percent in 2015, and the economic crisis and national crisis in Venezuela.
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2 The forecast figures given here for individual regions are based on average figures weighted by economic output for those countries in which Linde operates.