Situation of and outlook for the global economy at the start of 2015

The expectations prevailing in early 2014 about a pick-up in the global economy were thwarted, to some extent, as the year unfolded. As analysed in detail in the second section of this report, the sluggishness of activity was across several regions (the euro area, Japan and Latin America), and even China slowed marginally, although it continued to grow at a rate of over 7%. By contrast, other areas performed more favourably (the United States, the United Kingdom and emerging Europe). This differentiated behaviour of activity came about against a background of accommodative monetary policies and less stringent fiscal policies. The decline in commodities prices (and of oil in particular) had a downward impact on what were already very low rates of inflation, which tended to settle at a lower than-expected level in many advanced economies. The world economy in 2014 was marked by a series of events that will have far-reaching repercussions into 2015. These events included most notably the aforementioned fall in oil prices, which steepened sharply in the second half of the year and which has only come to a halt in early 2015. While the impact of this shock is, overall, positive for global growth (and, in particular, for oil-importing countries), adverse effects on oil-exporting countries are proving most notable. Further, as indicated, the decline in oil prices has a downward bearing (temporarily, in principle) on inflation rates that are already very low in the advanced economies, lessening central banks’ room for manoeuvre in the face of potential adverse shocks. Compounding this is the intensification of the cyclical differences between the main advanced economies, which has strengthened expectations of divergences in their respective monetary policy stances, with potential repercussions for international capital markets and financing flows. Other, longer-term trends are also influencing capital markets, the outcome of banking disintermediation and of regulatory changes, which affect economies’ financing patterns and, therefore, their growth possibilities. And, ultimately, this is a further factor shaping the outlook for the emerging economies. In some cases, such as Latin America, the disappearance of the favourable external conditions which enabled them to grow in the past poses a significant challenge to the sustainability of their growth, while in other cases, such as China, a re-gearing of the growth strategy towards a more balanced pattern can be seen. These issues, to which geopolitical risks may be added, are addressed in the third section of this article. Broadly, the forecasts for 2015, included in the fourth section, suggest global growth will stabilise at moderate rates (of around 3%-4%). This will be the outcome of greater dynamism in the advanced economies and of a further slowdown in the emerging ones. Risks appear to be balanced overall, given that the favourable effects of the fall in oil prices and of more expansionary economic policies will be counterbalanced by the vulnerabilities associated with low inflation, the potentially adverse impact on markets of monetary policy divergences in the advanced economies, the possible over-pricing of certain financial assets and geopolitical risks.