Htet Tayza analyses the results of a new study which indicates that consumer spending will spur global economic growth in 2016.
According to CNN money The Organisation of Economic Development (OECD) predicts that the global economy will grow by 2.9% this year, but by 3.3% in 2016. The Conference Board, an organisation which measures international economic activity, estimated the world’s economy would grow by 2.5% in 2015, but by 2.8% next year.
Real wages to rise
The latest study from Korn Hay Group, a human resources firm, linked this increase in expected economic growth to a rise in consumer spending. Shanghai Daily reported that the research suggested that the recent plunge in oil prices, they dipped to their lowest point in seven years last week, has pushed inflation lower and this will have a positive effect on real wages.
The term ‘real wages’ refers to wages that are adjusted for inflation, or equivalently, wages in terms of the goods and services that can be bought with them. The study suggested that low inflation will push global real wages up 2.5% in 2016, meaning that consumers across the world will have more money to spend next year.
If we break the study down, we see that workers in some of the most developed economies in the world are set to see wage increases next year. For example, US employees are projected to benefit from a 3% pay rise next year. When you take project annual inflation into account, this results in a 2.7% rise in real pay.
They are spending this money, according to Benjamin Frost, a consultant with Hay Group who oversees its salary databases. He commented that “a lot of what they (consumers) seem to be doing is spending that money and companies are generally not doing badly either.” Frost went on to note that “they (companies) are sharing the love with pay increases and hopefully that will come back around into their tills again.”
All we have to do is look at the US economy in the third quarter of 2015 to see how consumer spending aids economic expansion. Statistics quoted by Market Realist suggest that an increase in consumer spending led to a rise in US Gross Domestic Product (GDP) in the third quarter. GDP is the single best barometer of economic output and spending. Consequently, the US economy expanded by an annual rate of 1.5% from July-September 2015.
Htet Tayza comments
If real wages rise, then people will take more money home in 2016. This will give them the power to buy more goods and products, and will likely lead to an increase in consumer spending. This will inject more cash into the international marketplace, which may explain why the global economy is expected to expand throughout 2016.