General economic conditions
Global economy squeezed by uncertainty
According to the Kiel Institute for the World Economy (IfW) and the International Monetary Fund (IMF), global economic output grew by just 3.1 percent in 2016 (previous year: 3.2 percent). Economic activity around the world was significantly curbed by increased political and economic uncertainty. This was due in particular to the crises in Syria and Turkey, terror attacks in Europe, the British people’s unexpected vote to leave the European Union (“Brexit”) and the government and banking crisis in Italy. The slower growth in China also had a dampening effect. In contrast, the economy was supported by the expansionary monetary policy of the industrialised nations. After a modest start, the US economy picked up strength and is expected to have grown by 1.6 percent in 2016. Stimulus came from private consumption and a revival in exports despite the strong dollar. According to the IMF, the industrialised nations as whole grew more slowly than before at 1.6 percent in 2016 (previous year: 2.1 percent). In the emerging and developing nations, growth remained high in global terms at 4.1 percent, but it was weaker than in the past.
Economic development in the Europe, Asia Pacific and EMEA regions in 2016 is described below. The country-specific definition of the regions is based on the segment reporting of the Wilo Group.
Solid growth on a broad regional basis in Europe
The economy in the euro area also developed solidly in 2016. Economic activity was chiefly supported by private consumption, increased government spending and a revival in construction activity. However, businesses remained reluctant to invest due to weak export markets and international crises. The Brexit vote caused palpable uncertainty, but did not have a significantly negative impact on the real economy. According to initial data from the statistical office Eurostat, growth in the euro area boasted a robust basic trend of 1.7 percent in 2016.
All euro countries saw growth, even those with structural problems. Italy and Greece achieved moderate growth, while Spain, Portugal and Ireland expanded strongly. France’s economic development remained modest. The EU countries in Eastern Europe reported above-average growth rates. The UK’s economy grew somewhat more slowly than in the previous year, but still robustly despite the Brexit decision.
Germany’s economy benefited from strong domestic demand in 2016’s uncertain environment, continuing its expansion. In addition to the private consumption prompted by record employment and increasing incomes, government consumption and investment in construction grew palpably. Industrial activity revived towards the end of the year. According to the German Federal Statistical Office, gross domestic product grew by 1.9 percent in 2016 (previous year: 1.7 percent).
Asia remains global growth driver
Asia is continuing on its path of dynamic growth. According to the IfW, it grew by 6.4 percent (previous year: 6.6 percent) in 2016. However, the previous very high rates are a thing of the past. This is mainly attributable to the Chinese economy. The long-term structural shift from an economy dependent on trade, investment and heavy industry towards a strengthening of domestic demand, services and high-tech is reflected in a trend towards lower growth rates. The government’s short-term support stabilised growth in 2016 while exports were weak. According to the National Bureau of Statistics of China (NBS), China’s economic growth of 6.7 percent (previous year: 6.9 percent) was therefore in line with the government target.
According to the IMF, the Indian economy grew by 6.6 percent in 2016 (previous year: 7.6 percent). Stimulus was provided by private consumption, high government spending and the service sector. However, there was a decline in investment activity. In addition, the cash reform adopted unexpectedly in November put great strain on private consumption.
In Korea, the growth trajectory continued in 2016 with growth of 2.7 percent (previous year: 2.6 percent), according to the Bank of Korea. Investment in construction, which was the primary factor supporting the domestic economy, grew in double figures. Private consumption remained modest with only a small rise in wages. Fixed capital investment declined as a result of lower capacity utilisation and structuring in the corporate sector. The government countered this with fiscal and monetary policy measures.
The emerging economies of Southeast Asia lacked stimuli for exports to China and the industrialised nations. According to the IMF, growth in the five major ASEAN nations amounted to 4.8 percent in 2016, as in the previous year.
Political crises slow the economy in the EMEA region
Russia’s economy continued to suffer in 2016 because oil and gas prices remained low in a long-term comparison. The economic downturn was ameliorated over the course of the year – the central bank cut the benchmark interest rate twice in 2016 – and industrial production stabilised year on year. Nonetheless, the IMF reports that economic output shrank by another 0.6 percent over the year as a whole (previous year: -3.7 percent).
In Turkey, the economy suffered palpably from the impact of even greater political uncertainty resulting from the upheavals following the attempted coup. In addition, economic development was curbed by the persistently high corporate debt. The IfW estimates that the economic growth reached just 1.6 percent in 2016 (previous year: 4.0 percent).
In some cases, oil-exporting countries of the Gulf – especially Iran and Iraq – and North Africa performed better economically in 2016 than in the previous year. This was due to higher production prices and quantities for crude oil. However, the serious conflicts in the region prevented solid economic growth. In major oil-importing countries in the region such as Egypt and Morocco, the rate of expansion faltered in 2016. According to IMF data, the Sub-Saharan region is likely to have seen a palpable slowdown in growth. Nigeria’s economy contracted; economic development in South Africa stagnated.