January is over: it’s time for the markets to rise

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Royal Bank of Scotland warned of a “cataclysmic” year for the global economy, whilst Chancellor George Osborne made it clear that 2016 will not be easy for the UK. So far, these predictions have been largely accurate; markets had the worst start to the year on record and January has been plagued with releases of worrying economic data. But it is really all doom and gloom?

Chris Williamson, chief economist at financial data provider Markit, says that if scare-mongering talk like this continues we risk a “self-fulfilling prophecy”; investors will start to panic sell and both households and businesses will start to save, instead of the spending that is needed.

After all, things in the near future may not be so bad – the U.S. has raised interest rates for the first time in over a decade, showing that policymakers in the world’s biggest economy have faith that the future is looking bright. December’s US jobs data beat all expectations, with unemployment falling to a low unseen in months. And whilst oil’s lows are a still a blight on the landscape, combined with low wages and interest rates there is room for businesses and entrepreneurs to use this to their advantage.

Issues in China and Russia may be harder to make positive – growth in China has fallen from 12 percent in 2010 to 6.9 percent in 2015, an undoubtedly worrying fall. Similarly, low oil prices have caused Russia’s GDP to fall sharply, as it depends heavily on oil exports. However, Russia is starting to appreciate that butting heads with the EU and the U.S. will only exacerbate economic difficulties, and better global relations may well solve some of Russia’s problems. As for China, it remains important not to over exaggerate the country’s significance – as of 2014, the U.S., Japan and the Eurozone accounted for nearly half of the world’s global economy. A slowdown in China does not necessarily need to impact on the world’s economic health.

So whilst January may have been a bleak month for the markets, perhaps it is time to concentrate on the future. Dwelling too much on weak growth figures risks dampening investor sentiment and creating problems ourselves, and overall market forecasts have been better than 2015 – the IMF, for example, forecast growth of 3.6 percent this year, up 0.5 percent on the year before.

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