Geopolitical crises and epidemics haven’t stopped the global economy from expanding by some 3 percent in 2014. But what’s in store for 2015 – a new debt crisis, or a perhaps a crash in China?
The eurozone will remain the world economy’s main problem, with growth in the single-currency bloc expected to be negligible. “We forecast 0.8-percent growth for the euro area in 2015,” DZ Chief Economist Stefan Bielmeier told DW.
Problems in some of the eurozone’s big economies are worrying analysts. “The situation in Italy for instance is quite dramatic, with the economy stagnating,” said Roland Döhrn from the Essen-based research institute RWI. He added that in France, high public deficits are a big worry, and said that such a policy could not be continued for much longer.
Under performing fellow eurozone nations could affect Germany’s own economic growth prospects, since they are the customers for most of Germany’s exports. According to the Bundesbank, Germany’s gross domestic product will expand by just 1 percent in 2015.
But part of the reason for slow growth may be Germany’s own reluctance to adopt further reforms, according to Döhrn. He criticized the coalition govermment for dragging its feet on structural reforms while increasing social spending, pointing to a controversial new pension law which he says unnecessarily rolls back legislation from just a few years ago that had established a retirement age of 67.
“The costs for that project have to be borne by companies and contributors to the statutory pension fund. That’s a burden on firms, and reduces consumer spending,” Döhrn argued. With an aging population, Germany can ill afford earlier retirement or more generous pension benefits, many economists say.
Energy prices remain pivotal
In addition, there’s Germany’s large-scale energy transition – a shift to renewables which is driving up electricity costs for consumers, though not for corporations, who are largely exempt from sharing the costs.
“The energy transition is a desirable objective, but also a costly one and a braking factor when it comes to global competition,” maintained Bielmeier – though it isn’t clear why he thinks that might be the case, given that energy-intensive corporations are exempt from the electricity price surcharges levied to fund Germany’s low-carbon transition.
In the US, the fracking boom has brought down energy costs. Very low shale gas prices in particular have helped drive a reindustrialization of the US economy.
“Many companies are coming home from Asia to restart their businesses in the US because they’re more competitive there now,” Bielmeier says. DZ Bank expects the US economy to grow by 3 percent in 2015 and beyond.
China will continue focus on consumption
For the world’s second-largest economy, China, the lender forecasts 7-percent growth, or even a tick above that. It would mark the lowest expansion rate in China since 1990. But it’s still very fast. Plus, the slightly lower rate of expansion is part of the government’s efforts towards more sustainable economic development. The aim is to shift the focus from credit-based projects and export-driven growth to more consumer spending.
Bielmeier was certain China will master the challenges ahead, given its huge currency reserves: “That’s a stabilizing factor, since whenever a problem occurs, they can fix it so that the problem in hand does not turn into a pan-economic threat.”
While the Chinese dragon is losing a little momentum, the Indian elephant is bracing for its next big leap. The OECD reckons with 6.6-percent growth in the world’s second-most populous nation in 2015.
“One’s got to wait and see whether that forecast only reflects premature praise for the new government under Narendra Modi,” said Döhrn. “After all, India is still among the group of nations with the biggest structural problems.”
Latin America at risk from low commodity prices
That also applies for two Latin American heavyweights, Brazil and Argentina, the economist maintained. He said Brazil suffers from infrastructure deficits, while Argentina is confronted with a seemingly unmanageable situation over its massive sovereign debt.
“In addition, Latin America has many nations that depend too much on their raw materials exports, and that makes them extremely vulnerable to commodity price fluctuations.”
As commodity prices look likely to continue to dip, Latin America is bound to become a continent of disappointment once more in 2015. There’s even talk about Venezuela defaulting should the oil price drop even further.
Falling oil prices will also rip even bigger holes in the budgets of Nigeria and Russia, with Bielmeier assuming that Russia will slide into a recession – with low oil and gas prices exacerbated by ongoing Western sanctions on some companies and sectors.
For oil-importing nations, however, the low oil price level acts as a growth driver.
“If you like, a steep drop in oil prices is like a redistribution of income, and for nations such as Germany, it’s a real income boost,” Döhrn said.