What’s in Store for the Global Economy and Consumers in 2016?

2016 Predictions

With the global economy continuing to face headwinds in 2015, flow-on effects and fears surrounding the China slowdown look set to continue haunting the global economy in 2016. A second big story of 2015 will also continue into the New Year –the Fed “lift-off” – the speed at which the fed raises interest rates will be watched closely around the world. Because of their vulnerability to the reversal of inflows of foreign capital, emerging markets, already struggling, are closest to the eye of this particular storm.

  • Latin America will be the worst-performing emerging market region, with real economic growth 3.5 percentage points below the emerging market average. The region – not least its largest economy, Brazil – is suffering from the impact of low commodity prices and political instability but also faces structural challenges such as weak productivity growth, difficult business environments and a demographic slowdown;
  • In the developed world we expect to see a continued strengthening of major economies including the USA, UK and Germany. Growth in the eurozone in particular remains uninspiring. Uncertainty will build during 2016 in the USA in the run-up to the presidential election.

Some commodity prices will rally in 2016, but on the whole prices will remain well below recent peaks. In 2016, El Nino could hit production of major crops such as palm oil and wheat, driving prices upwards and having a serious impact on both producers and consumers of these crops.

Economic risks continue to be on the downside

All-in-all, 2016 is set to be another year where the global economy strengthens moderately but where downside risks, including the China slowdown, a decline in global trade and the impact of tighter monetary policy in the USA on emerging markets, remain elevated. Upside risks, which could see growth outperforming our projections, include stronger wage growth in advanced economies, which would boost consumption, and a greater-than-expected resilience of emerging market economies. A key word for the year will be “divergence” with the lack of strong, broad-based global growth across markets clearly evident.

Experience and mindfulness will continue to resonate

How will this impact on consumers? The answer is that today’s consumer will continue to evolve, with a blend of trends and countertrends characterising behaviour and attitudes. One constant will be the sustained move away from the amassing of more “stuff” to the gathering of experiences, with savvy consumers defining themselves ever more by what they have seen, done, felt, heard and been part of; and less and less by what they own. Increasing geopolitical risk and economic uncertainty have fuelled interest in mindfulness, spiritual wellbeing and a search for a sense of purpose, and this theme will continue to resonate in 2016.

Will consumers part more easily with their cash in 2016? Unfortunately the answer is likely to be “no, not really”. Although we expect global growth in consumer spending to accelerate in 2016, we are unlikely to see stellar growth, much less a return to the good old days. Consumer sentiment in emerging markets is likely to strengthen compared to the dismal performance of 2015, but even so private consumption in China will continue to slow and Russia and Brazil will still see consumers reining in their spending, albeit at slower rates than in 2015. Innovation is key to success in this kind of climate – reaching the right people, in the right place at the right time. Understanding which features consumers will pay more for, and which they won’t.

Smart-homes to the fore

Technology continues to advance apace with consumers increasingly interested in sharing and communicating, with each other but also with their homes, cars and other belongings. 2016 is likely to be the year that we see the smart home gain traction with consumers with large digital players like Google now in the market. With e-commerce and m-commerce well established in developed and emerging economies alike, s-commerce will come to the fore in 2016. In 2014, according to our Hyperconnectivity Survey, one-in-two consumers had “liked” or “followed” a company’s social media feed, but far fewer have interacted more proactively by providing feedback via social media or actually buying something. In 2016, we expect more consumers to take this next step.

Staying ahead of the curve

As we look ahead through 2016 we see consumers grappling with continued economic uncertainty, spending carefully and embracing technology that simplifies their busy lives. Staying ahead of this curve is imperative for consumer goods companies battling with new rivals from the tech world, as well as increasingly sophisticated domestic players in emerging markets, and consumer trends such as sharing, which have the power to revolutionise consumer markets.

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