Biggest risks threatening global economy heading into 2016

Compared to last few years, 2015 hasn't been that kind to investors and traders. Global stocks can hardly be called as outperformer despite stimulus from European Central Bank (ECB). Focus of the year was on rate hike from US Federal Reserve, which finally got delivered last week.

Several more hikes are expected in 2016. However that is not one of the biggest risks threatening global economy. According to us below two are the one that will keep investors awake at night -

Lower oil price implications -

While lower oil price is seen as major stimulus for oil importing economies such as Europe, India, lower price has darker side too. Lower oil price has already led to shelving of projects worth billions of Dollars but real crux is for past decade, oil producing economies have invested their surplus cash into equities, bonds and helped finance the current account gap of many EM economies. In a word, they have been trillion Dollar liquidity provider. That process have already started reversing and we expect in 2016 it will only intensify.

We have and will be discussing the impact in greater detail under, Oil in global economy series (check Econo Times - series)

Bad debt in emerging market -

Since global financial crisis, to benefit from lower global yield, monetary stimulus and investors' hunger for yield has led to pile of debt emerging market corporate balance sheet both in foreign currency as well as domestic. These over-leveraged balance sheets of EM corporates are likely to be the biggest concern heading into 2016 and beyond.

We have been discussing these issues in greater detail under, Emerging Market crisis series (check Econo Times - series)

All other issues such as high yield debt problem, subsequent hikes from FED, either stemming from these two or likely impact these two, which in turn would threaten global economy.