Crystal balls at the ready! This is the time of year when we economists like to give the benefit of our supposed wisdom and you, the readers, indulge us by appearing to believe that we know what is going to happen. Since economists are normally a pretty gloomy bunch, this represents the triumph of fear over experience. By contrast, I find myself fairly optimistic about the year ahead – albeit tempered by the usual dose of worries.

On the global front, the most important influence on our economy will probably continue to be the price of energy. I reckon that it is likely to stay roughly at the current level, although it may trend up a bit.

Two consequences follow from continued low energy costs. First, across pretty much all of the developed world the rate of inflation is set to rise from the near-zero rates that have prevailed recently.

Second, whereas last year saw the predominance of the negative effects of low energy prices over the positive ones, this year that balance should reverse. The losers from low prices will already have done most of their cutting, while the gainers may still increase their spending.

I doubt whether China is again going to provide the main source of anxiety this year. I suspect that the slowdown has pretty much come to an end and there may even be scope for economic growth to pick up a bit. In America, I expect the recovery to continue bowling along at its recent solid though unspectacular pace.

In recent years the euro-zone has been a running sore for the world economy. Although it did a bit better last year, I suspect that its growth rate will fall back in 2016. Certainly no one should suppose that its fundamental economic problems are fixed.

In some ways 2016 is going to be a watershed year. Having flirted with deflation, most developed economies will now experience a return to more familiar territory and policymakers – except in the euro-zone and Japan – will return to the once familiar quandary as to how far and how fast to put up interest rates in order to fend off the danger of inflation.

David Fuller's view

Here is a PDF of Roger Bootle's column.

Readers of the financial press are subjected to a plethora of 12-month financial forecasts at this time of year.  They are not without some merit, including consensus views which can be a warning for contrarian thinkers. 

This service does not release its own annual forecasts because Eoin and I comment on the markets every day, including medium to longer-term forecasts in the Friday ‘big picture’ Audios.  However, I am always interested in Roger Bootle’s forecasts regarding him as a practical economist with a good track record.

Nevertheless, I suspect Roger Bootle and most of the rest of us who are not perennial bears will find today’s market action somewhat unnerving.  Moreover, a weak start to the year can often weight on sentiment for a longer period.  

Subscribers may recall my checklist of four points which concerned me when I responded in both writing and Audio to the optimistic outlook from The Weekly View: 2016 Outlook Highlights: Shifting Gears, which I posted on 22^nd December and also discussed in the Audio for that day. This item is updated and reviewed today, including in response to a subscriber’s email citing concerns expressed in today’s FT. 

While I expect 2016 to be choppy, given the current uncertainty over global GDP growth, Europe’s migration crisis, increasing strife and tensions in the Middle East, uncertainty over China’s economy, etc., my overall view remains more in line with those of Rod Smith for The Weekly View, plus Roger Bootle and Ambrose Evans-Pritchard of The Telegraph.  Nevertheless, these technical factors remain a concern: 1) Wall Street’s continued deterioration in market breadth, signalled by underperformance of the Russell 2000 Index,   means that fewer and fewer shares are supporting averages near current levels, so a sustained push above 1200 is required to indicate improving breadth; 2) November’s and December’s seasonal underperformance, extended by today’s very weak opening for January, are hardly reassuring for investors; 3) the risk of a Dollar Index breakout to the upside from its current range remains and will probably require continued intervention by the US Treasury on behalf of the Federal Reserve to prevent this potential bearish development for the US economy, and any countries which borrowed in US Dollars at lower levels; 4) the weakness of crude oil and metal prices ensures that primarily resources economies remain in severe recession and are therefore unable to purchase services or products from other countries; 5) investors are also concerned about a number of other factors including: a) US share valuations; b) China’s GDP slowdown during the transition from mostly manufacturing to a developing services oriented economy; c) increasing tensions and conflict in the Middle East; d) slow global GDP growth and continued deflationary pressures; e) the EU’s migrant crisis.  

No doubt subscribers and other commentators will be able to extend the list of today’s concerns.  This is not a counting game and the fact that they are being listed tells us that they are at least partially discounted.  I trust that these risks will soon be over discounted but that is for the bulls to prove.  Recently, they have been on the sidelines.  Nevertheless, stock markets are once again oversold and today’s indiscriminate selling is becoming climactic.     

(See also: European Stocks Post Worst Start to a Year as China Rout Spreads)