Economic focus January 2016: Making sense of chaos

Report summary

It has been a tumultuous start for global financial markets in 2016. We have seen sharp falls in commodities, currencies and equities. What is driving these declines, and are concerns justified? China stands at the centre of the turmoil, and fears continue to mount about its growth prospects. Fundamentally, the outlook for China's real economy remains broadly unchanged. But there are concerns about policy makers ability to deliver a smooth transition to a more free market economy, with functioning capital markets. Meanwhile, commodity producing economies are vulnerable to further weakness in their currencies and higher interest rates. Sovereign and corporate default in some of these troubled economies looks like a certainty in 2016.