BNM: Global Economy To Improve At Modest Pace In 2016

KUALA LUMPUR, March 24 (Bernama) -- The global economy is expected to improve at a modest pace in 2016 amid considerable downside risks arising from policy developments in major economies, high uncertainty in global commodity prices and abrupt financial market adjustments. Bank Negara Malaysia (Malaysia's Central Bank) said growth in the advanced economies is expected to proceed at a gradual and uneven pace. "Even with highly accommodative monetary policies, the advanced economies are experiencing persistent economic slack stemming from unresolved structural issues and weakness in domestic demand," it said in its 2015 annual report released Wednesday. For the emerging economies, the central bank said growth is projected to recover from the shock to external demand experienced in 2015. It noted that the extent of the recovery will be contingent on several factors, including commodity price developments, financial market conditions and the ability of economies to contain rising domestic vulnerabilities. "In this environment, global trade activity is expected to register only a modest improvement. The confluence of external and domestic headwinds will make 2016 a challenging year for policymakers globally," said the central bank. The projected improvement in the global economy is subject to considerable downside risks, amid a highly challenging growth and policy environment. Given China's rising importance in the global economy and extensive trade and financial linkages, a potential sharper-than-expected growth moderation in the Chinese economy would have significant spillover effects on global trade activity, investor sentiments and commodity prices. Bank Negara said uncertainty surrounding key commodity prices would continue to affect growth prospects of several large economies. Crucially, a further downward adjustment in commodity prices will lead to a weaker-than-expected outlook for commodity-exporting countries while creating disinflationary pressures in several economies. On top of the moderate growth in global demand, crude oil prices are expected to be weighed down by continued oversupply from both the Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC members. "The restoration of oil supply from Iran follows the cessation of economic sanctions and the lift of the ban on US oil exports," said Bank Negara. For hard commodities, lower demand from several key economies, including China, will continue to exert downward pressure on prices, particularly for copper, nickel, zinc and iron ore. Amid the modest outlook for global commodity prices, headline inflation rates are expected to remain below central banks' inflation targets in most advanced and emerging economies. In some of the advanced economies, underlying inflationary pressures are expected to be subdued, reflecting continued excess capacity and weak demand in these economies. Across the emerging economies, inflation is projected to exhibit diverging trends. While lower fuel prices are easing inflationary pressures in most emerging economies, several economies, including those in the Commonwealth of Independent States, Latin America and the Middle East, are projected to face a faster pace in price increases due to the removal of subsidies. Additionally, the effect may be exacerbated by imported inflation, mainly reflecting the impact of marked currency depreciations. For Asia, the high degree of uncertainty in the external environment will continue to generate high volatility in domestic financial and currency markets. "Thus far, financial intermediation in most Asian economies has remained undisrupted," said Bank Negara. --BERNAMA