FXStreet (Delhi) – Deutsche Bank’s Research Team expects that global economic developments in 2016 will be significantly impacted by a gradual reduction of' liquidity. Key Quotes “The 25 basis point Fed funds rate hike now widely anticipated at the Federal Reserve’s December meeting would be the first such move since June 2006. This should be followed by three more 25 basis point rate hikes during 2016. Towards the end of next year, Deutsche Bank expects signals that the monetary taps in Europe will begin to close as well. While similar moves are probably more than a year away in Japan, Deutsche Bank Research does not expect the Bank of Japan to add to its asset purchases.” “While Deutsche Bank’s baseline scenario sees the global economy continuing to grow at a moderate pace over the next two years, there are substantial risks on either side. On the down side, global financial markets could respond much more negatively to Fed normalization than expected, with adverse repercussions for household and business spending around the globe. The gap between the market’s and the Fed’s forecast for interest rates suggests that a negative response could result from an upward adjustment in market expectations towards the Fed, even without more aggressive tightening than the Fed currently envisions.” “A signal that the Fed will begin to wind down its reinvestment of securities could add to this turbulence. This downside risk would be exacerbated if there was a surprising resurgence of inflation pressures in the US as the unemployment rate moves below full employment”, Folkerts-Landau explained. “Such a development would force the Fed to adopt a significantly more rapid pace of normalization.” “A more aggressive Fed would, in turn, be negative for risk assets with potentially strong depressing effects on aggregate demand. A sharper than expected slowdown in China next year would have obvious knock-on effects on commodities, global trade and emerging markets.” “But on the positive side, it is possible that the recent poor performance of productivity growth globally especially in the US has been an aberration, and that recent technological advances could spur a surprising recovery”, Folkerts-Landau added.” For more information, read our latest forex news.