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Annual Report 2016

effect of lower oil prices did not entirely counterbal-

ance the negative effects of the price decline on the

energy sector. Low average oil prices also kept infla-

tion low, making it challenging for central banks to lift

interest rates. This was another factor which kept oil

markets unbalanced, as leveraging costlier uncon-

ventional oil sources was facilitated in such an eco-

nomic environment. It was only in the second half of

2016 that cooperation between OPEC and non-OPEC

producing countries began to rebalance the oil mar-

ket and stabilise these aspects of the global econo-

my, lifting growth in the second half.

Global economic growth in 2016 ended at 3.0%,

after reaching 3.1% in 2015. Thus the global growth

dynamic continued to hover at around 3%. On a re-

gional level, it was interesting to see that the Euro-

zone outpaced the US in growth at 1.7%, compared

with 1.6%, respectively, as the US economy was sig-

nificantly impacted by the decline in oil prices and

low productivity growth. In the Euro-zone, growth

momentum continued and was broad based, with pe-

ripheral economies recovering. Japan also continued

to expand, though annual growth remained at 1.0%.

In the emerging and developing economies

(EMDCs), growth was relatively uneven. While In-

dia saw growth of 7.5% and China also managed a

considerable growth level of 6.7%, Brazil and Russia

remained in recession at –3.6% and –0.5%, respec-

tively. Latin American growth was particularly nega-

tively impacted, as Argentina’s figures also declined

significantly, estimated at –2.0%.

Monetary policies were again an influential fac-

tor in 2016. While the US Federal Reserve (the Fed)

started the year with a median projection of lifting its

key policy rate by 1 percentage point to 1.375% by

the end of 2016, ongoing challenges in the US econ-

omy and abroad kept interest rate rises at 25 basis

points only in December, lifting the key policy rate to

0.625%, a full 50 basis points lower than expected

by the Fed at the beginning of the year. Still, the Euro-

pean Central Bank (ECB) and the Bank of Japan (BoJ)

held a more accommodative approach than the Fed.

Both banks charged negative deposit rates at the be-

ginning of the year, which remained unchanged over

the year. Despite the low interest rate environment in

the US, the difference in monetary policies between

major central banks and expectations of rising in-

terest rates in the US were enough to trigger capital

outflows from major emerging economies, which also

had some negative impact on economic activity and

hence energy demand in those economies. Moreover,

all major central banks in emerging economies —with

the exception of the People’s Bank of China (PBoC)

— lowered interest rates over the course of 2016 to

stimulate growth in their respective countries. This

exacerbated capital outflows and on some occasions

also led to currency weakness. Many EMDCs that are

commodity exporters were, therefore, challenged by a

variety of issues: currency weakness and hence high-

er import prices, lower income via a decline in com-

modity prices and capital outflows given the relatively

higher yielding US dollar.

Political developments were also of major impor-

tance within the year, but did not impact economic

development as much as initially expected. Among

the various political developments, the UK’s decision

to leave the European Union was expected to materi-

alise in significantly lower growth, but consumption

held up well. The sharp decline of the pound sterling

also had a limited negative effect in 2016, as exports

benefitted largely from this development.

North America, Japan and the Euro-zone

The three major OECD economies again developed

very different economically in 2016. While the US had

a relatively weak start to the year and picked up later,

Japan recorded its highest quarterly growth in the first

quarter and the Euro-zone’s growth pattern was rela-

tively equally distributed. The pick-up in US growth

in the second half may have also been supported by

rising oil prices, which lifted the energy sector and

consumer sentiment.

In the US, the labour market also showed con-

siderable improvement over the year, supporting