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1/9/16

Global Economy: Is 2016 the year when the world tumbles back into economic crises

Rarely have financial markets had a more traumatic start to the year. Shares plunged, the price of oil clattered to its lowest level in 11 years, trading on the Chinese stock market was halted twice, and the World Bank warned that a “perfect storm” might be brewing.

George Osborne chose his moment well to go public with his concern that the UK faces a “cocktail of threats”. In addition to the $2tn wiped off global stock markets, the North Koreans claimed they had exploded a hydrogen bomb and relations between Saudi Arabia and Iran worsened markedly.

On the face of it, there seems no reason why the global markets should remain depressed. Rising oil prices have traditionally been associated with recessions, so a drop of more than two-thirds in the cost of a barrel of crude should, logically, be good for growth. Cheaper energy means lower costs for businesses and additional spending power for consumers. There are winners and losers from a falling oil price but on balance the impact should be positive.

What’s more, it could be that the gloom about China is overdone. The slowdown in the rate of growth is not just intentional but desirable. Should the economy cool more quickly than planned, Beijing has plenty of power to ensure there is no hard landing: it can boost public spending; it can push the currency lower to boost exports; it can cut interest rates.

Read more: Is 2016 the year when the world tumbles back into economic crisis? | Business | The Guardian

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