2016-2020_Financial_Plan_Web

FINANCIAL OVERVIEW ECONOMIC OVERVIEW

INTERNATIONAL

Financial market volatility and subdued demand will continue to hamper the world economy. Global economic growth is forecasted at 3.1% for 2016. With the exception of the US, the ongoing recovery from the financial crisis will continue to be fueled by government bailouts and low interest rates. Depressed prices for oil and other commodities will put downward pressure on inflation, giving central banks around the world cause for continuing with their highly accommodative monetary policy stances. The outlook for crude oil prices is bleak. Oversupply of oil coupled with sluggish demand and ongoing US dollar appreciation continues to push prices down further. Oil prices dipped to a 12 year low at the start of 2016, trading under $30 USD per barrel for the North American benchmark, West Texas Intermediate. At the same time, a barrel of Western Canada Select traded under $15 USD per barrel, the lowest price on record. OPEC nations continue to flood the market with oil in an attempt to squeeze high-cost producers out of business. With no imminent plans to pull back on this strategy, excess supply will continue and perhaps worsen as western sanctions against Iranian oil are poised to be lifted in 2016. The International Energy Agency already estimates a “massive cushion” of 3 billion barrels of oil around the world. Some forecasts indicate that North American benchmark oil prices could slide to $20 USD per barrel as oversupply and a strengthening US dollar work to erode the commodity’s value. If prices do fall to this level, it should theoretically be short lived as it is well below the production cost for many producers outside of the Middle East. While Saudi Arabia, Kuwait and Iraq can produce a barrel of oil for around $10 USD or less (on average), fiscal sustainability for these and other countries in the Middle East starts at around $50 USD a barrel. The Eurozone continues to struggle to come to consensus on economic, fiscal and banking reforms. Weak demand and reduced confidence in the economy continues to drag on growth. Low oil prices, a weak euro, and loose monetary policy contribute to a projection of only 1.7% GDP growth during 2016. The European Central Bank indicated that it will continue with its current monetary policy and negative interest rates given weak global demand, high unemployment, and stubbornly low Euro-area inflation. China’s economy is maturing and growth is expected to come in at 6.5% this year. 2016 began with steep declines in Chinese stocks, causing reverberations in global stock markets. China’s central bank has attempted to guide the Yuan lower against the US dollar to aid the country’s export sector and bolster economic growth. This move has alarmed investors who, fearing further currency depreciation, have aggressively sold off the currency. The result has seen weakened confidence in the Chinese economy and its stock markets.

2016-2020 FINANCIAL PLAN

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