With 2016 fast approaching, our attention is focused on identifying and assessing the trends that will shape the year ahead. Here are five trends to watch, based on insights drawn from Dun & Bradstreet's commercial database of over 240 million company records, and our daily monitoring of regional events.
1) Compliance. From the Volkswagen scandal to China's anti-corruption drive hitting its stock market, to Brazil's governmental implosion in 2015, the list will only grow. 2016 will be the year when investors and C-suite managers realize that the biggest blindside risks come from compliance violations that can have sizeable effects on corporate earnings, and that this is a systemic, not a transitory feature of the risk environment.
2) Diversification in oil-dependent countries. As countries seek to adapt to what could be a new normal of lower oil prices, governments that have previously been unsupportive of investment outside the gas and oil sector will work to improve the business environment across the board. This will open new, sizeable markets. This is particularly the case for Russia and Central Asia, and in sectors such as agriculture. Investors should look to capitalize on the "first mover advantages" of investing early in these nascent sectors.
3) The battle for the soul of the EU. With anti-European Union parties doing very well in recent elections across the continent, and immigration policy now competing with fiscal austerity for the title of EU deal-breaker, the European dream's future appears fragile. This will keep business sentiment in the region muted. In 2016, the EU will not be on the verge of unraveling, but the specter of closed borders (effectively reversing the EU's single largest achievement), and slippages in implementing reform packages in southern euro-zone members (remember, the euro-zone crisis was postponed, not solved) will weigh on regional growth.
4) Weather. Terrorism is at the forefront of public consciousness, but in terms of impact on businesses, the El Nino will be the more salient influence. It will cause manageable but noticeable market shocks for both hard and soft commodities via extreme rainfall, drought, and loading and lifting schedules for seaborne commodities (any commodities that can be transported by ships such as crude oil and grains). The debate from these phenomena will feed into the debate generated in the aftermath of the Paris climate-change conference in December 2015 and variations from historic average weather patterns from India to California. Predictive and real-time analytics to power supply-chain intelligence and readiness will be growth areas.
5) The known unknowns. Finally, the foretold dramas – the events we know will take place and which may pass smoothly, or not. How will normalization of U.S. interest rates by the Federal Reserve play out? Will the strong dollar act as a brake on U.S. growth, hoover up global liquidity and cause emerging-market currencies to plummet? Or, will markets react positively to what is a long-overdue monetary policy normalization? Will China's job market, service sectors and corporate bond market defy the deflation and the debt crises quietly engulfing upstream industry and swathes of northern China? Or will India take the baton from China as the fastest-growing major emerging market? Will 2016 be a watershed for the global financial industry – will the additional regulatory burden so disrupt market liquidity and traditional financial sector earnings bases that the sector will undergo a painful transformation? Under some of these scenarios, risk management will trump sales growth imperatives for businesses across the globe.
Commentary by Oana Aristide, the acting chief economist at Dun & Bradstreet.