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Economic Overview
2016-2020 FINANCIAL PLAN
A shift is underway to transition China’s economy towards domestic consumption while
reducing reliance on exports and government investment. The government is taking
steps to address over-supply of housing in urban areas by increasing urbanization
through movement of its rural population. The plan includes removal of barriers to
migration for rural residents, including, access to education and medical care.
Urbanization of China’s massive rural population, estimated at approximately 624
million people, will not only increase demand for housing but will increase the overall
income of its people, leading to increased domestic consumption.
UNITED STATES
The US economy is expected to gain further momentum in 2016 with GDP growth
forecasted at 2.6%. The US labour market continues to improve with over 200,000 new
jobs created each month last year. During the fourth quarter of 2015, the unemployment
rate reached a seven year low of 5% while the final tally saw 2.65 million jobs added
during the year.
Based on this strong employment growth, the US Federal Reserve (Fed) raised its key
interest rate by 0.25% in December 2015, the first such increase in almost 10 years.
Analysts predict that the Fed will further raise its key interest rate by up to a full
percentage point during 2016, albeit gradually. The Fed will be looking for target
inflation to reach 2% and a return to full employment as a guide to further rate increases.
A faster “normalization” of interest rates is expected once these two conditions are met.
The slowing growth of the working-age population coupled with reduced excess labour
supply will result in less new job market entrants going forward. The Fed predicts that
an increase of 100,000 jobs per month going forward will be sufficient to keep the
unemployment rate within a range that it considers full employment.
As the labour market improves, wages should follow suit. Incomes are forecasted to rise
by 3% in 2016. These wage gains, coupled with improving confidence in the economy
and increased employment, are expected to fuel consumer demand. Solid gains in the
housing market and auto sector are also expected this year.
The US dollar enjoyed a 10% appreciation (trade-weighted) during 2015. The dollar’s
surge was driven largely by divergence in economic performance, and hence,
expectations about monetary policy between the US and the rest of the world. The
upward trend is expected to continue in 2016 but some analysts predict that the US
dollar is close to peaking. Estimates indicate that there is almost $10 trillion worth of US
dollar denominated debt held by non-financial entities outside the US. The record surge
in USD has now made it more difficult for those holders to service that debt. At 18% of
world GDP (excluding the US), the exposure of debtors to a strengthening US dollar is
now twice as large as it was back in 1997 when a US dollar surge contributed to a
financial crisis in Asia.
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