Savannah Chamber

11 5 less negative factor in terms of 2016 U.S. GDP growth than in 2015. The main obstacles to faster U.S. export growth are the same as last year: the strong U.S. dollar and global economic weakness. One reason why imports will grow in 2016 will be slightly faster growth of domestic consumer spending, which implies slightly faster growth of imports of finished goods as well as more outbound U.S. tourists. American export growth will be broad based, and growth will be faster in emerging-market economies than in developed economies. Increases are expected for all of the major categories of goods and services. Exports of goods will grow faster than exports of services. Export growth will be fastest for vehicles and parts, and industrial materials and supplies. It will be slowest for foods, feeds, and beverages. Consumer goods and inbound tourism will see moderate gains. It should be noted that the broad-based quality of US export growth reduces the chances that export growth will stall. We expect slight U.S. dollar depreciation to begin in the second half of 2016, but that will not help U.S. exports too much because the dollar's value will still be quite high. The current account deficit will equal about 1.9 percent of U.S. GDP, which is only 0.5 percent lower than estimated for 2015. Inflation If oil prices remain relatively steady, consumer price inflation will increase by 1.7 percent in 2016, compared to 0.1 percent in 2015, and that is close to the range that the Federal Reserve appears to be targeting. Higher housing prices and rents and higher medical prices will drive the increase. There are no signs that inflation will soon be a problem, because the usual drivers of inflation will not be very intense in 2016. For example, the pace of 2016 GDP growth will be below average and only 0.2 percent higher than in 2015. Consumer spending will grow moderately while employment will grow more slowly than last year. There is still excess capacity in a large number of economic sectors, illustrated by the below average rate of capacity utilization. Moreover, the strong dollar and low commodity prices will keep inflation at bay. Apparently the employment situation has not improved to the point where labor market conditions will support rapidly accelerating inflation. Heightened competition for jobs from both domestic and foreign workers also will help to keep the lid on U.S. wages and benefits by dampening workers expectations even as consumer prices rise. As long as the Federal Reserve does not keep rates too low for too long, the risk of stagflation remains very low. The precise timing and magnitude of the future rate increases by the Fed will depend on both the magnitude and perceived durability of the expansion. Based on our forecast of lackluster (but sustained) U.S. GDP growth and a sluggish global economy, the Federal Reserve will increase short-term policy interest very slowly in 2016. Crude Oil Markets Absent additional significant supply interruptions or additional price premiums due to increased political tensions, it is unlikely that oil prices will go much higher or lower in 2016. Prices will range between $50 and $60 per barrel, but price volatility could push it outside of this band. Also, this forecast is predicated upon a slight acceleration in the modest pace of global economic growth and no major disruptions in the supply of crude or refined products.

• Cover