The year is off to a turbulent start; both in the UK, and around the world. January saw oil prices plummeting, while Chinese growth slowed, spooking investors (but surprising none). But amid the turmoil and confusion of global stock markets, there are a few economic trends which look set to hold sway throughout 2016.
Here’s a wrap up of some of the key developments which will shape our society in the months to come.
Employment for women
Many developed economies are experiencing a rise in total employment. And in most cases, it comes down to one critical factor: the growing number of women joining the work force. This represents one of the biggest social changes of modern times. For example, in the UK, the employment rate for women is the highest since records began, at 68.8% – in part due to the ongoing equalisation of men and women’s retirement ages.
Of course, there are still huge discrepancies between the economic rights and opportunities available for women across the globe. But ultimately, nations where women do not work lose out. Research shows that women’s skills in the labour force add much value to a national economy. Granted, this is partly related to the low pay and promotion inequality facing women, and more progress is needed to address these issues.
Women at work.from www.shutterstock.com
Expect to see women’s employment continuing to rise, and to be associated with economic growth and wider social benefits, despite global economic challenges. In 2016, countries and organisations that give positive employment opportunities to women will have greater chances of doing better, even in tough times.
The debt trap
While women’s employment may inspire hope in today’s challenging economic environment, credit and debt trends offer less reassurance. After the financial crisis, governments and central banks busted a gut to pump money into the banks and get them lending. But there is currently a feeling of déjà vu – as though the world could very easily experience another credit crisis in 2016. There are two clear signs: one in the UK, and one abroad.
Carney’s conundrum.Pool/Reuters
The first one is that premier league central banker Mark Carney – who transferred from Canada to the Bank of England as the ultimate master of inflation – now has a curious problem. He cannot find any inflation to master.
A little inflation is good for the economy, a bit like one glass of wine a week for health. The UK economy currently gets nowhere near its target of 2%. Inflation would decrease the value of current debts, making them less of a burden. In a world without much inflation, it is hard to get wages up. The worse case scenario is that debt costs increase, as prices and wages stagnate.
Elsewhere, the small interest rate rise in the US has made credit more expensive for many. Businesses in rapidly developing countries, which borrowed when the dollar was cheap, look vulnerable. For countries tied into dollar-based lending, there’s cause to fear the appreciation of the dollar against their local currency.
Expect debt statistics to go on spooking commentators throughout 2016. Look for a different policy approach that tries to kick start credit via governments and central banks. New strategies will be needed to get money to the parts of the economy that can enhance productivity and pay real, long-term rewards, such as renewable energy. Better this, than for credit to inflate existing assets such as current housing stock, or company merges and acquisitions.
A transport boom
Speaking of productive growth – transportation has been a key growth area in the world economy, and looks set to continue on this path.
In the UK, the railways have been a growth area for two decades, with more investment planned, albeit not without political pitfalls. And China has seen extraordinary growth in high speed rail development and use.
Meanwhile, air transportation grew globally in 2015 and “hub” countries such as the UK and Gulf States benefit from this. Low oil prices make flights cheaper and encourage growth. Air transportation in the UK is ripe for expansion, but is linked to a difficult political decision over London’s runways.
Business is booming.from www.shutterstock.com
Global car sales continue to rise at a time when oil is cheap. And while the number of electric cars grew more rapidly in 2015, they still represent a small proportion of the total.
This productive growth in transportation has to be debated alongside the need for the uptake of greener technology. Many governments know the ultimate prize will be getting ahead with the production of electric cars and the infrastructure they require, in order to reduce pollution and improve health.
For example, the UK government just financed four UK cities to provide better charging and parking facilities for electric vehicles. In London, the mayoral candidate, Zac Goldsmith, has clearly linked electric cars with a sustainable environment and proposes financial incentives to encourage their use. Tesla in the US has invested huge amounts gambling that the electric car will become more popular. Fortune favours the brave.
Expect to see continuing growth in rail and air travel. Meanwhile, the countries and companies that invest to get ahead with electric cars and other green transport options are likely to see the biggest long term returns. Oil will not stay at $30 a barrel forever.
Young people in poverty
Another key trend is the increase in the poverty experienced by young adults. A growing number of students in the UK are exiting with greater long term debt, while Australia is implementing measures to ensure student loans are paid. In the US, student debt now stands at $1.3 trillion.
Where’s my piece of the pie?www.shutterstock.com
As well as debt, housing will be a major issue for this group. The price of property is increasing in major cities such as Sydney, Vancouver, London and New York: these markets require high deposits, and rents are rising. In the UK, this is making the generation gap worse, when it comes to wealth: those aged 50 and over own most of the UK’s asset wealth, including housing.
And in this age of austerity, these factors will work against governments seeking to reduce the welfare bill. Recent data shows that, in UK cities, growing numbers of low paid jobs have led to rising claims for welfare such as housing benefits, defeating the government’s aims to reduce spending.
These major challenges for young people prevail across most developed countries. Expect young adults to be increasingly dependent on wealth transfers from their parents to clear university debt and secure housing, while those without such support face increasing disadvantages. Only major changes in policy can prevent further inequality for this generation.
Politicians are prioritising the needs of the growing older population who are living longer. But the young are paying the price in lost opportunities and look vulnerable to further economic and social change.
Author: Philip Haynes, Professor of Public Policy, University of Brighton
