International Outlook for 2016.

• Author: Mafi-Kreft, Elham

In 2016, we expect world output to grow at an annual rate of 3.6 percent, not much of a change compared to 2015 and 2014. The economic contrast between the United States and most of the rest of the world will continue to intensify. On one side, the U.S. should enjoy continued growth in the new year, sustaining its 2.5 percent growth from 2015. On the other side, many developed countries and emerging economies will continue to struggle, as they have for much of 2015.

United States

Despite the end of the Federal Reserve's five-year quantitative easing programs in late 2014, the U.S. economy has continued to receive help from the Fed. U.S. monetary policy has remained particularly accommodating by keeping interest rates between 0 and 0.25 percent to incentivize spending. However, with the strength and stability of the domestic market, we believe in the imminent end of the zero rate policy. The ultimate effect of this imminent rise in interest rates is uncertain, but it should have limited consequences on the domestic economy. The limited impact stems from the fact that the increase in rates should be minor and also because market participants have already been anticipating such increases for some time now. The largest effect of a change in U.S. interest rates will be felt by emerging economies, which may further experience an outflow of capital as foreign investors will be attracted to the higher returns in the United States.

One of the interesting aspects of the U.S. economy, and what makes it unique, is its ability to rely on endogenous factors to stimulate growth and its resiliency to grow internally. The U.S. is not as vulnerable to global shocks as many other developed countries. In 2015, our dollar was strong and our major trading partners (China, eurozone members, Japan, Mexico and Canada) were weak economically leading to weak exports, so the health of the U.S. economy almost completely stemmed from private spending.

The driving force behind U.S. GDP growth has been our domestic household spending. Consumer confidence was encouraged by a constantly improving labor market, exceptionally low oil prices and an exceptionally low cost of borrowing. Furthermore, the surge in household spending has had a positive spillover effect on the U.S. automobile industry and the residential housing industry (construction and sales). However, the collapse of oil prices, and more generally commodity prices, has and will continue to adversely affect the mining and oil industry in 2016. Overall, after seven years of moderate...