How the Recession Will Unfold for Us, America, and the EU

What external risks will 2016 bring for the shaky Russian economy? What’s worth getting worried over? More precisely, what events in the world economy could seriously affect us?

Among economists of the liberal school it seems that talk about the global economy’s rate of growth is quieting down. In Russia, however, you will still occasionally hear the expression “almost everyone else is growing, and we’re the only ones shrinking.” In reality, the second wave of recession isn’t only unfolding in our country. It’s most apparent in the BRICS* countries, but it’s not worth discounting Europe and many of the “young economies.”

Global oil prices couldn’t fall below $40 a barrel in a dynamic and healthy global economy. However, fall they did. The global economy isn’t on the rise, and even if good statistical reports are encouraging to observers, that doesn’t mean a thing.

The time when the United States’ economic recovery meant the beginning of a new global economic ascent has passed. Now all one needs to do is wait for the second wave of the recession to hit America. We can see primary indications already. Secondary and tertiary ones will come later.

The U.S. has worked hard over the past years to break the rules they themselves established beforehand. The most serious move has been their repudiation of overseas hydrocarbons. Trans-pacific partnerships and their Atlantic counterparts are long-term work.

Of course, it’s not America’s fault that the BRICS countries – and especially China – have fallen apart. 2015 already saw a stock market crash, and a further development of the recession is to be expected.

The most important thing that needs to happen in China is a devaluation of the yuan, which might happen in 2016. The drop-off in industrial production might also be significant, but it’s harder to guess in this case. Chinese statistics are far from reliable.

However, regardless of how much the data have been falsified, Beijing can’t keep propping up the yuan. This will sharply decrease the value of the Chinese market and diminish imports to China. The devaluation of the yuan, in double-digit percentages, will be advantageous for exporters at first. Later, they will see that the reduction of imports to China will lead to a decrease in demand for Chinese goods in the rest of the world.

Reduced demand for Chinese goods was noted in a number of countries in 2015. This process will continue in 2016, influencing prices on raw materials.

Oil has definitely entered a new phase of flux since the end of December. If prices have stopped falling, then they will fluctuate between $35 and $40 a barrel for the next few months.

Then they will continue their downward movement and enter a new, lower zone of fluctuation. It’s possible we will see between $26 and $32 a barrel by summer. After that, a lot will depend on China.

And it’s not just China; the EU is also experiencing signs of recession. Many countries on the global periphery have already been flailing in the second wave of recession for a while. Europe, on the other hand, has produced data showing humble, if not to say microscopic, growth. The European bureaucracy even managed to demonstrate certain improvements, if they really are improvements, in Spain and Greece over 2014-2015.

The euro also devaluated against the dollar during this period, after the fall of the ruble. The same thing happened with the British pound. Both the pound and the euro will certainly fall again in 2016, at which point the markets will contract. The ricochet will hit China, as well as global trade in raw materials and food products.

Lower prices on many food products worldwide, which can be expected in 2016, is of particular concern. It will happen after national currencies have been weakened.

In this case, governments undergoing austerity will have hurt themselves and others. Reduced government expenditures, especially on social services, will work to reduce demand and lower global prices on raw materials.

2016 will be a tough year for Russia. That’s not news for either citizens or analysts. Now it’s important to understand how the crisis will unfold in the U.S. and EU.

In this case, it’s likely it will occur in two phases: first, the situation in Europe will deteriorate, in step with China, and only then with the U.S. allow itself to admit the fact that the crisis was far from completely dealt with in the previous years. The recession will come back, hitting the stock market as well. However, the consequences of this new recession remain unclear.

On the other hand, it’s perfectly clear that the U.S. is playing a game of “chicken” with other countries. They are withdrawing capital in order to keep the dollar strong, trying to hold out until their opponents’ currencies devalue. Only then will they be able to devalue the dollar.

How low will it go? How long will it last? It’s still too early to guess. Nevertheless, the return of recession to the U.S. is a foregone conclusion; it’s just far from certain that it will be recognized in 2016. Much here will depend on the decisions the White House makes, as well as who is running it. The Federal Reserve will begin slowly raising interest rates.

Important developments should occur in 2016 in the housing markets of Germany and the U.K. There has been a noticeable tapering off of price increases there, and prices are already falling if measured in dollars. These same “foundations” will be shaken in many countries who had the reputation of making it through 2014-2015 unscathed.

On the whole, the year will be marked by an overt and growing recession. This is nothing new for Russia; the trend has been recognized, and plenty of ink has been spilled over it. That’s not what’s important. What’s important is that we start reacting to the challenges of finally abandoning destructive “free trade” and sheltering our markets.

* Editor’s note: BRICS is an acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa.