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Looking into 2016

Economic outlook

December 2015

Home / Perspectives / Economic outlook: Looking into 2016

Neil Williams, Senior Economic Adviser
01 December 2015
Macro Economics


  • Despite China’s slowdown, concerns about Greece, & imminence of the US Fed’s first rate hike, global growth should not be completely derailed. But, clearly, these are headwinds, & another reason for central banks to take only baby steps to normalising rates.
  • With the gap in 2015 between advanced and emerging economies’ growth rates, at just 2%yoy, the smallest since the boom of 2000, the pressure to preserve world growth is tilting back from the emerging to advanced economies.
  • Our macro outlook is based on four core beliefs. First, not only will US and UK real policy rates stay negative into 2017, but ‘peak’ rates when they come will be much lower than we’re used to, & certainly below the US/UK’s historic averages of about 5%.
  • Second, these peak rates will ultimately be delivered by central banks running down their assets via ‘QT’ (quantitative tightening). The BoE wants first to see Bank rate back up around 2%, which will take years. This could be part of a ‘disaster recovery’ for Brexit (risk case), which may need extra QE.
  • Third, China may be slowing, but has the wherewithal to soften the landing. Even with just 3% real growth in 2015, China will have generated over two years nominal growth equivalent to the total GDP of Spain. Expecting it to carry on doing more was unrealistic.
  • Fourth, despite pockets of vulnerability, a ‘blanket’ emerging market crisis seems unlikely. External debt ratios are generally lower, there are fewer fixed pegs to protect, & they can print money. This makes comparisons with 1994, when most assets were hit hard, look superficial.
  • Meanwhile, the ‘baton’ looks like it’s being handed back to the advanced economies to fuel world growth, while China enacts an avalanche of stimulus measures sufficient to arrest the decline and avert market turmoil.
  • If it doesn’t, the US Fed’s rate tightening cycle could prove to be one of the shortest yet. Which all suggest 2016 will be more like 2015 than 1994. The ball is admittedly in China’s court - but doing nothing would be a bit like a turkey voting for Christmas...


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Neil Williams Senior Economic Adviser Neil joined Hermes in August 2009 and is responsible for Hermes’ economic research. He has a forward-looking approach to generate investment strategy ideas. Neil adopts top-down methods – macro and market analysis to identify interest rate and credit value, and sovereign default risk. Neil began his career in 1987 at the Confederation of British Industry (CBI), becoming its youngest ever Head of Economic Policy. He went on to hold a number of senior positions in investment banks - including Director of Bond Research at UBS, Head of Research at Sumitomo International, Global Head of Emerging Markets Research at PaineWebber International, and, before coming to Hermes, Head of Sovereign Research and Strategy at Mizuho International. Neil has 30 years’ industry experience and earned an MA in Economics in 1986 from Manchester University, having the previous year completed his BSc (Hons), also in Economics, from University College Swansea.
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