A host of perennial factors affects the global economy in good times and bad. In fact, to a great extent, these factors are responsible for good and bad times alike.
In any given year or cycle, business owners, economists, and regular Joe workers worried about their economic security can expect to deal with a slew of more specific factors that may or may not persist over the time horizon.
Here’s a look at six specific factors that are almost certain to affect the global economy in the coming year:
1. Brexit: Will They or Won’t They?
This year’s trillion-dollar question: will U.K. voters elect to leave the European Union? The fate of the world’s economy, or at least the short-term direction of global markets, quite literally rests in the hands of a few tens of millions of adult Brits. Recent polls offer conflicting signals, so the smart money isn’t quite sure what to think. Economists and global business leaders unabashedly argue for continued membership, however — and warn that “Brexit” could devastate the European economy.
2. An Unsteady China
China’s recent ascendance has had a powerful, and largely positive, impact on the global economy. As China’s growth slows and the country’s central planners strain to reposition consumers in the control room of its heretofore production-driven economy, most observers expect ripples of weakness to radiate out into the developed world. How strong and persistent those ripples become is another question.
3. Accelerating Automation
We may look back on the year 2016 as the “automation watershed” — the beginning of the end for low-skill production workers. Over the coming years, technology is likely to render tens of millions of positions redundant, with impossible-to-predict results.
4. The Commodities Rebound
Principal identifies an important, but thus far overlooked, trend that could really move markets (and lay waste to business owners’ best-laid plans) this year: rebounding commodity prices. Rising hydrocarbon and metal prices are good for miners and refiners, which contribute billions to the global economy. Millions of furloughed workers could return to the job as a result. On the other hand, expensive commodities depress consumers’ spending power. Economists’ best guess: a relative wash.
5. Inflation?
Economists, investors and business owners have been waiting for inflation to hit for years now — ever since central banks started pumping money into the economy in the wake of the Great Recession, in fact. But it hasn’t materialized: inflation actually remains low by historic standards, below what’s generally considered healthy in a growing economy. However, there’s some evidence that — with help from rising commodity prices and the winding-down of the last of the central banks’ stimulus programs — inflation could finally rear its head in the next 12 months.
6. The U.S. Presidential Election
It might not be polite to discuss politics at family gatherings, but the political climate is simply too important for business owners and economy-watchers not to heed.
American voters face a pretty stark choice this November. Whatever your feelings on the candidates themselves, it’s virtually assured that the outcome of the election will affect the U.S. economy — and, by extension, the world’s — in the coming year (and beyond).
…Not necessarily because of any specific policies the winner pursues, mind you. The markets are more sensitive to politics than many realize, and the mere fact that the guard is changing is enough to reset expectations. What that reset looks like is another question entirely.