As the New Year gets into full swing, financial analysts are making their predictions for the year. There seem to be a few direct contradictions out there, but if you’re living on a tight budget, it’s best to plan for worst-case scenarios. But to stop you from entering the year filled with doom and gloom, we’ll also highlight some of the positive predictions.
1. Plan for another global recession
This is the big one! Although a few analysts say that the US economy will be strong in 2016, the majority of analysts point out that the recovery of the US after the last recession has been achieved largely through the government using various artificial strategies to prop up the economy.
For instance, the Fed has been keeping interest rates low – but what will happen when these props are removed? Ultimately, it has to happen, because the methods that boosted the US out of its recession are unsustainable, and we can already see indications that our financial crutches are going to be kicked out from under us. After all, the Fed has finally begun inching interest rates up.
Then there is the situation in China that affects the global economy in a big way. The yuan has been devalued, Chinese economic growth is slowing, stock values are falling and, says Ruchmir Shama of Morgan Stanley, one more shock from China will be disastrous for the global economy.
As for Europe, the sovereign Debt Crisis continues unabated despite quantitative easing implemented by the European Central Bank. The so-called PIIGS nations (Portugal, Ireland, Italy, Greece and Spain) are worst off with Greece in particular seeming to be in a constant downward spiral. Bailouts can’t continue forever!
In support of this rather gloomy outlook, the World Bank has downgraded its global economic forecasts for 2016, but if you’re in the US, you may be heartened by the news that it expects US economic growth to accelerate slightly while being less optimistic about prospects for the developing world.
What should you do? Don’t risk taking on new debt if at all possible, and try to pay off existing debt as soon as you can. Even if the crisis doesn’t happen as predicted, you’ll be a whole lot better off!
2. The investment market will remain volatile
2015 was a rocky year for investors, with those who entered the market on low values in the wake of the last economic crisis seeing a substantial slowdown in growth. However, if you invested between 2010 and 2014, you will have seen remarkable growth as the global economy worked its way back upwards, and you can’t expect that to continue indefinitely.
With the global economic issues we just discussed in point one making investors feel jumpy, we can expect considerable fluctuations in the investment market during 2016.
What should you do? Hang in there! Despite dramatic drops in share values during the last economic crisis, the market more than recovered within a few years. Investment is a long-term game.
3. The oil price will remain relatively low
While some analysts expect the oil price to climb to around the $60 per barrel mark, others say it may creep down a bit to around the $40 mark. One thing that they all seem to agree on is that oil prices will remain relatively stable in 2016 and won’t recover to the drastic prices of up to $100 per barrel that we’ve seen in the past.
That’s good news for consumers who drive cars (i.e. just about everyone), and it’s also good for keeping inflation low, since the oil price affects the pricing of everything else we buy – after all, everything gets transported sooner or later!
What should you do? Enjoy it while it lasts!
4. Resources will continue to tumble, but the future for gold looks good
2015’s incredible fall in the value of resources such as copper and oil will probably be legend for years to come. Entire economies were affected: for example, Chile suffered badly owing to its economic dependence on copper – and shareholders in resource-oriented businesses couldn’t sell out fast enough.
Most analysts say that we can’t expect much from resources in 2016, but some of them are predicting a 2016 spike in the gold price, and unhedged gold mining companies are expected to perform well during this year. Other gold stocks are expected to bottom out during 2016 to be followed by a strong resurgence in 2017.
What you should do: Be cautious about investing in resources, and cautiously optimistic about gold.
5. More people will be self-employed
With economies around the world taking strain, and thanks to US legislation tightening the requirements for health-insurance, many believe that companies will prefer outsourcing to hiring permanent staff. After all, telecommuting is now a breeze.
As it is, many analysts believe that unemployment rates in general, and in the US in particular are skewed, because they don’t take the number of people who have left the job market because they simply can’t find permanent employment into account. One analyst claims that if this factor is added to the equation, US unemployment could still be as high as 10%.
What you should do: If you have a permanent job, hang onto it, and if you’re planning on switching jobs, be sure that your new job is a definite before you quit the old one. Sharpen up your skills, and if you’re already unemployed, couple your job hunt with an attempt to find freelance work.
6. City rents will rise
According to Fox News, many people will be moving out of the cities and will find that despite their long commutes, they save when their out of town rental is compared to the skyrocketing city rentals in the US.
A similar situation has already come to pass in the EU as competition for valuable city-space drives residential rentals ever upwards. But every cloud has a silver lining – living in a quieter area is pleasant, and if there is a good public transport network at your disposal, your commute need not be stressful.
What you should do: If you live in a central location, compare out-of-town rentals (plus commuting costs) to your current rental. You might find yourself joining the exodus too!
7. Inflation rates will rise without being out of control
Both the US and the EU are expecting around 0.5% increase in the inflation rate this year. The EU expects inflation to rise to about 1.5%, while the US is expected to experience an increase that will raise inflation to 1% this year. Although this may not seem like a huge increase, salaries have not been keeping pace with inflation for some years, so you can expect to be 0.5% poorer in the coming year – unless predictions for salary increases are realized.
What you should do: Beat the inflation rate by cutting 0.5% of your expenses! We all tend to spend money unnecessarily, so it should be possible to cut your household expenses by half a percent.
8. The property market will be ‘good to fair’
Price Waterhouse Coopers predicts that the US property market will range from fair to good in 2016. That’s good news if you’re planning on selling up (hopefully at a profit), but less good if you’re looking to buy. But PWC maintains that real estate remains a more stable and predictable investment than stocks and shares.
EU property prices are also expected to increase during 2016, with many analysts believing that a reduction in properties for sale coupled with an increased demand from buyers drove 2015’s growth.
What you should do: If you’ve got an investment property, 2016 may be the year to sell, but if you own a residential property, you should first carefully consider home prices in an area you may be relocating to and balance this against what you will realise from your previous home.
9. Rising interest rates in the US, falling in the EU
In the US, the Fed is expected to inch its interest rates up by 0.25% each quarter, ending with a 1.5% interest rate by the fourth quarter of 2016. The EU on the other hand, is entering a period of quantitative easing and real interest rates are expected to fall according to the European Commission Economic Forecast.
What you should do: Keeping debt to a minimum is always good advice. Even if you are in the EU, quantitative easing cannot be expected to last indefinitely!
10. For once, salary increases may outpace inflation
Provided we don’t face another global economic meltdown as has been predicted by all too many, we may actually be marginally better off in 2016. Both the EU and the US will be outpacing inflation, according to experts, with 2.8 – 3% average salary increases being predicted for the EU and the US respectively.
You probably won’t feel a whole lot richer – after all, inflation for these regions is expected to be 0.5%, but it’s still an improvement on a few years ago!
What you should do: Don’t go crazy, your salary increase will only be a little over inflation in the coming year. And that will depend on your luck, China’s economic performance and a whole lot of other factors. Continue to be frugal!
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