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FINANCIAL OVERVIEW
ECONOMIC OVERVIEW
2016-2020 FINANCIAL PLAN
INTERNATIONAL
Financial market volatility and subdued demand will continue to hamper the world
economy. Global economic growth is forecasted at 3.1% for 2016. With the exception of
the US, the ongoing recovery from the financial crisis will continue to be fueled by
government bailouts and low interest rates. Depressed prices for oil and other
commodities will put downward pressure on inflation, giving central banks around the
world cause for continuing with their highly accommodative monetary policy stances.
The outlook for crude oil prices is bleak. Oversupply of oil coupled with sluggish
demand and ongoing US dollar appreciation continues to push prices down further. Oil
prices dipped to a 12 year low at the start of 2016, trading under $30 USD per barrel for
the North American benchmark, West Texas Intermediate. At the same time, a barrel of
Western Canada Select traded under $15 USD per barrel, the lowest price on record.
OPEC nations continue to flood the market with oil in an attempt to squeeze high-cost
producers out of business. With no imminent plans to pull back on this strategy, excess
supply will continue and perhaps worsen as western sanctions against Iranian oil are
poised to be lifted in 2016. The International Energy Agency already estimates a
“massive cushion” of 3 billion barrels of oil around the world. Some forecasts indicate
that North American benchmark oil prices could slide to $20 USD per barrel as
oversupply and a strengthening US dollar work to erode the commodity’s value.
If prices do fall to this level, it should theoretically be short lived as it is well below the
production cost for many producers outside of the Middle East. While Saudi Arabia,
Kuwait and Iraq can produce a barrel of oil for around $10 USD or less (on average),
fiscal sustainability for these and other countries in the Middle East starts at around $50
USD a barrel.
The Eurozone continues to struggle to come to consensus on economic, fiscal and
banking reforms. Weak demand and reduced confidence in the economy continues to
drag on growth. Low oil prices, a weak euro, and loose monetary policy contribute to a
projection of only 1.7% GDP growth during 2016. The European Central Bank indicated
that it will continue with its current monetary policy and negative interest rates given
weak global demand, high unemployment, and stubbornly low Euro-area inflation.
China’s economy is maturing and growth is expected to come in at 6.5% this year. 2016
began with steep declines in Chinese stocks, causing reverberations in global stock
markets. China’s central bank has attempted to guide the Yuan lower against the US
dollar to aid the country’s export sector and bolster economic growth. This move has
alarmed investors who, fearing further currency depreciation, have aggressively sold
off the currency. The result has seen weakened confidence in the Chinese economy and
its stock markets.
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