2016 economic predictions: the year of the Epocalypse
A word was needed for economic, epoch, collapse and apocalypse at once. The year was expected to earn it.
The forecast for 2016 was published on 8 January under a coined word, “Epocalypse”, assembled from economic, epoch, collapse and apocalypse because no existing word seemed large enough. It ran to eight thousand words and sixteen headings. This page keeps the substance of each, in order, because the value of a forecast is in being able to check it, and the check is at the end.
Nations in the hole
Brazil, a few years earlier the brightest of the emerging markets, was in a recession that Bank of America called its worst since 1901, with inflation rising at the same time, a combination that leaves policy nothing to do. Japan, Canada, Australia, Venezuela, Russia, Ukraine and Greece had all been in recession during 2015. Measured in dollars, aggregate world GDP had contracted for more than two quarters: the planet was in recession, and the head of the IMF, Christine Lagarde, was warning that a rising American interest rate would raise the cost of dollar debt everywhere at once, doubly so if the dollar strengthened.
For the United States the institutions were cutting fast. UBS, the Atlanta Fed and Deutsche Bank all had 2016 growth at about 0.5 per cent, down from above 2 a year earlier, and their record was of always cutting late. The view here was that the country might already be in recession and that something worse than an ordinary one was building.
China
China’s economy had grown in 2015 at its slowest rate in fifteen years and its own government expected slower. Its stock market had been held in suspension for half a year while the ground moved under it, and the rescue, when it came, was state purchases of shares, which meant the market was being held up by the same hand that would have to let go.
Oil
Tom Kloza of the Oil Price Information Service, whose 2015 call had been the most accurate, expected West Texas crude at 32 dollars; it was close to that as the forecast was finished, before Iran, with the cheapest oil in the world to extract, had returned to the market. Saudi Arabia had kept its population quiet by not taxing it; Iran could press that weakness by pumping. Storage was full everywhere. American producers were being crushed at the existing price.
The rest of the list
An industrial recession in the United States, with factory orders down year on year for thirteen consecutive months. Stocks held up by buybacks and priced for a growth that was not coming; UBS was advising clients to sell and buy gold. A bond market that had been the largest bubble of all, and hedge funds heading for the exits. The Middle East, with Saudi Arabia and Iran near open conflict. The Federal Reserve, which had raised rates for the first time in nine years in December and had lost, on this view, the ability to do it again without breaking something. Housing prices back at 2007 levels on the same loose credit. Student loans past a trillion dollars with default rates rising. Auto loans extended to seven and eight years on subprime terms. Black swans, by definition unlisted. And under all of it the American debt, which the forecast held to be the fundamental flaw in the foundation, and the absence of any recovery plan that did not consist of more of it.
What happened
The first quarter of 2016 was the worst start to a year for stocks on record; oil bottomed at 26 dollars in February, below Kloza’s number; Brazil’s recession continued through the year and its president was removed; China’s growth slowed as predicted and its market did not recover its 2015 high for years. The American industrial recession was real: manufacturing output fell through the first half and the Atlanta Fed’s growth estimate touched the numbers in the forecast. The Fed, which had signalled four rate rises for 2016, managed one, in December, which was the forecast’s point about its room to move.
What did not happen was the collapse. The oil rebound from February, a Chinese credit expansion, and a central bank that stopped tightening for eleven months bought the year back, and the stock market ended it at a record on the election result. The forecast had the direction of nearly every item right and the destination wrong, which is the usual result of forecasting a system that has a central bank in it. The word, at least, survived: it is the name of the series that follows in this section.