WASHINGTON: The year 2016 was marred by several unexpected developments: the UK’s shock decision to leave the EU; China’s struggle to stabilise its economy; the surprise election of Donald Trump in the US; and the persistent deflationary pressures engulfing most advanced economies. Perhaps a less widely publicised example, however, was the unanticipated slowdown of the US economy. The US ran out of steam in the first half of 2016, as growth in the world’s largest economy slowed unexpectedly. Growth expectations for the year fell from 2.5 percent at the end of 2015 to 1.5 percent.
Although consumer spending held up well during the year, business investment was weak and exports were held back by the strength of the dollar and lacklustre growth elsewhere in the world. The sluggish economic performance was one of the reasons the Fed refrained from raising rates during the first half of the year – despite initially planning one or two possible hikes. There were several headwinds following the beginning of the year that seriously worried policymakers. The year started with a fresh bout of volatility in financial markets, principally caused by the People’s Bank of China’s (PBOC) willingness to let the yuan depreciate against the dollar – the same source of panic that led to turbulence in the global market in the summer of 2015. This, in turn, renewed concerns over the health of China’s economy, and the subsequent knock-on effects it would have on other emerging market economies.
