GLOBAL

OUTLOOK
2015

A Report by Divyesh Bohra & Rahul Gupta.

The World Economic Situation and Prospects 2014 had projected a higher growth
in January 2014, but due to a number of factors that we will discuss later in this
report, the current projection stands at 3.2% for 2015. The revision in the growth
forecast to 3.2% for 2015 has been made mainly because of the changes in the
economic scenario in developing and in-transition economies. It is forecasted
that the developing countries will continue to grow at a rate of 5.1% in 2015. On
the other hand, growth in developed nations is expected to be at 2.4% for 2015.
Although there has been a gradual recovery in the economies of both developing
and developed countries, the effects of the financial crisis of 2007-08 are still
having an impact on the prospects of these economies. Higher unemployment
rates and unstable public finances are the major challenges that most economies
of the world are facing currently, and it is expected that 2015 will not prove any
different.

FACTORS AFFECTING GROWTH:

Lets take a look at some of the most important factors that will have an impact
on the world economy outlook in 2015.

Employment The global employment levels are expected to grow at a slow

pace as has been the case after the financial crisis of 2007-08. Since 2013, the
employment levels in the world have been growing at a pace of 1.4% lower
than 1.7% growth seen before the recession. The recovery in the global economy
has done little to boost the job market, with global unemployment levels
hovering at 6% by the end of 2013. Developed nations will face the challenge of
structured unemployment as long-term unemployment is expected to grow in
2015 as well. Developing nations, on the other hand, might still have to grapple
with high informal employment levels, which are around 40% to 50% on an
average.

Global Imbalances The current-account imbalances of the major economies

of the world are expected to remain low in 2015. The US, while having the
largest deficit economy, will continue to lower its external deficit. Asian
powerhouses China and Japan too are seeing a decrease in their current-account
deficits. The deficit of economies of oil-producing nations is projected to
increase in 2015, suggesting a weakening in external demand from deficit-hit
countries.

Commodity Prices It is projected that the global commodity prices will

remain high in 2015. The price of Brent crude oil is expected to stabilize in 2015
due to the slow recovery of the global demand for oil. However, geopolitical
tensions in the Middle East will play an important role in determining oil prices;
any tensions in the region can lead to an increase in the oil prices. The prices of
agricultural products are also expected to remain low in 2015 due to the
increased plantation for highly priced staples. Also, as 2013 proved to be a
bumper year for agricultural products, leading to increase in agricultural stocks,
the price of agricultural products is expected to remain low in 2015 as well.

Inflation Global average inflation levels are expected to increase mildly in

2015. Economists are of the opinion that although inflation levels in developed
nations will increase slightly in 2015; the EU might be heading to deflation.
Substantial gaps in the output, slow economic recovery, and increase in the value
of regional currencies are the prime reasons for the projection of deflation in the
EU. As far as developing nations are concerned, inflation levels are expected to
remain low, primarily because of the sharp decrease in the inflation levels in
India and Iran.

REGION-WISE OUTLOOK:
US Although the outlook for the US is positive, there are a number of concerns
that can pose serious challenges to the economy in 2015. There are also positive
forecasts about the business investment and labor market, but the foreign demand
is expected to remain low. Most economists are of the belief that the effects of
phasing out quantitative easing (QE) will be seen on the US economy in 2015.
Concerns about increase in the long-term interest rates and the threat of
geopolitical tensions are challenges for the US economy in 2015. Private
consumptions is expected to grow by around 3% in 2015 in the US. This is due to
the positive effects of the recovery in the US housing market and the slight
improvement in the employment levels. Although the housing market is showing
signs of improvement, it is nowhere near the pre-crisis levels. The recovery that
the housing market saw in 2013 was offset by the Federal Reserves decision to
phase out quantitative easing (QE). The labor market has shown signs of
recovery, but considering the projected unemployment levels of 5.8% in 2015,
there is a still a lot of work that needs to be done. The real exports and imports

are expected to grow at a rate of around 5-6% in 2015. The tapering of the longterm government bonds and mortgage-based securities is expected to be complete
by this year end and this may have a bearing on the federal funds interest rates,
which is expected to be around 0 to 0.25% by the mid of 2015, and increase
thereafter.
Canada The Canadian economy is expected to grow at a rate of 2.8% in 2015.
Currently, Canada is facing challenges with rising unemployment levels and
reduced household consumption growth. Canada has been in news all through
2014 for its red-hot housing market, which was due to the historically lowinterest rates. However, if the interest rates increase in 2015, there could be a
downturn in the Canadian housing market. The outlook for Canadian economy in
2015 will be largely dependent on the economic scenario in the US, which is its
largest trading partner.
Australia The growth of Australian economy is expected to be around 2.2% for
2015. The Australian economy was heavily dependent on its exports in 2013, and
it is expected that exports will continue to drive the economy in 2015 as well.
However, the reduced demand in the global market might lead to a downturn in
the exports next year. Australias large mining resources are expected to appeal to
investors all around the world in 2015. Private consumption and household
savings might see an increase in 2015 as Australians look for ways to deal with
the rising unemployment levels. Inflation levels in Australia are expected to
remain below 3% in 2015. The outlook for unemployment levels is positive and
it may come down slowly in the next year.
Western Europe The GDP growth in the western European region is expected to
grow by 1.8% in 2015. The region has a long road to recovery as the GDP is still
to match its pre-recession level. The credit policy has become a lot stricter since
the financial crisis which has made it difficult for the development of small and
medium businesses. The slow growth in the region has caused the inflation levels
to remain at a low level for a long time now, and experts worry the region might
face deflation in the next year. The United Kingdom, Germany, Spain, and Italy
are the countries that are recovering from the effects of the financial crisis of
2007-08. This was some information on world economy forecast for 2015.
Although there are a number of positive indicators for 2015, its also true the

global economy will face myriad challenges as well. Concluding, we hope that
this article gives you an insight into the world economy outlook for the next year.
India India's economy is expected to grow by 5.5% in Fiscal Year 2014 (ending
31 March 2015), unchanged from the Asian Development Outlook (ADO) 2014
forecast in April. The revival of investment, a possible easing of interest rates in
mid-2015, and improved growth in the industrial economies should boost growth
to 6.3% in FY2015, a bit higher than the ADO 2014 forecast. Recent measures
such as easing environmental and forest clearances for mines, roads, power
stations, and irrigation systems - and expanding the monitoring role of the project
monitoring group - will help speed the implementation of projects in the pipeline.
Selected economic indicators (%) India
GDP Growth
Inflation
Current Account Balance (share of GDP)

2014
ADO
Update
2014
5.5
5.5
6.0
5.7
-2.5
-2.3

2015
ADO
Update
2014
6.0
6.3
5.8
5.5
-2.8
-2.5

Source: ADB estimates.

Inflation continued to track lower in the first 4 months of FY2014, with year-onyear consumer inflation averaging 8.1%. This was well below the FY2013
average of 9.7%, as was wholesale inflation at 5.6% versus 6.0%. A base effect,
subdued corporate pricing power, tight monetary policy, and sluggish consumer
demand combined to temper inflation.
Monetary policy is likely to remain tight, given the central banks focus on
reining in inflation. Consumer inflation is expected to average 8.1% in the whole
of FY2014 and then moderate to 7.2% in FY2015. These forecasts assume
continued measures to tame food inflation, modest hikes in support prices for
farmers, and moderating growth in rural wages. Wholesale price inflation - which
excludes services, has a smaller food component, and was earlier the target of
monetary policy - is forecast to average 5.7% in FY2014 and 5.5% in FY2015, in
both cases 0.3 percentage points lower than forecast in ADO 2014.
Since raising key policy rates by 25 basis points in January 2014, the central
bank has maintained the status quo. It is reluctant to lower rates and risk missing
its targets for lower inflation at 8.0% by January 2015 and 6.0% by a year later.

The new union budget presented in July 2014 aims to cut the fiscal deficit to
4.1% of gross domestic product (GDP) in FY2014. The ratio of tax (including the
provincial share) to GDP is projected to come in at 10.6%, which assumes a
17.7% increase in gross tax collections, for tax buoyancy of 1.4. This is a much
higher ratio of tax collection growth over GDP growth than has been experienced
before. Without any major change in tax structure, achieving higher tax buoyancy
will be a challenge.
The external sector improved in the first quarter of FY2014 as measures initiated
in mid-2013 took hold. The trade deficit shrank to $34.6 billion from $50.5
billion in FY2013. Imports contracted by 6.5% as gold imports, which had
caused very high trade deficits, fell by more than half from the year-earlier
quarter to $7.8 billion as various import curbs were imposed. While oil imports
increased marginally by 4.1% in this period, imports other than gold and oil
remained flat.
The FY2014 current account deficit is likely to be 2.3% of GDP, a tad less than
forecast in ADO 2014. In FY2015, the current account deficit is expected to
widen slightly to 2.5% (again less than the earlier forecast) on account of imports
growing by 10% as industry and investment revive, and with further relaxation of
import curbs. Exports are also expected to pick up and grow by 10% as partner
countries further consolidate their growth momentum.

The map gives a snapshot of whats ahead, based on the latest IMF forecast.
South America is a mess, with Argentina and Venezuela leading the losers
parade and Brazil not far behind. Russia and Western Europe are weak. All three
economies of North America are looking pretty solid. The strongest growth is
projected to be in South and East Asia as well as much of Africa, which is
starting from a low base. Then theres Greenland, which islarge. (The
Mercator projection exaggerates the polar latitudes.)
The unifying theme is that the global economy is taking longer than expected to
recuperate from the bursting of the debt bubble during the last decade. Three
years ago, the IMF projected that the world economy would be back on track by
2015, growing at 4.8 percent. The U.S. has pretty much met the IMFs
(diminished) expectations. The disappointments, says the IMF, have been the
BRIC nationsBrazil, Russia, India, and Chinaas well as parts of the Middle
East, Europe, and Japan.
Thats led the IMF to reduce its forecast for 2015 global growth to 3.2 percent. It
projects 3.1 percent growth for the U.S. next year, just 1.3 percent in the euro
area, and 0.8 percent for Japan. Chinas projected 7.1 percent growth, high
compared with other nations, would be the countrys lowest in 15 years. China
isnt geared for such a slowdown: Indebted investors such as property developers
could default on a large scale if expansion comes in much below their
expectations. The disparity in growth rates among the big four economiesthe
U.S., China, Japan, and the euro zone.
Expect continued dissonance among economic policymakers in 2015. A taste of
that came in late October, when the Federal Reserve announced it was ending its
third round of bond buyingand two days later, the Bank of Japan said it was
expanding its own bond purchases. Quantitative easing, as the bond purchases
are called, is designed to drive up the market price of bonds. When prices rise,
yields fall, lowering the rates for mortgages and other loans that matter to
consumers and businesses. Next year, the European Central Bank may embark on
its own quantitative easing over the objections of Germanys conservative
Bundesbank.