Author: Uri Dadush
Originally published by Carnegie Endowment for International Peace
Six years after the outbreak of the financial crisis, with unemployment still high across most of the advanced countries, and many developing countries in trouble, the global economy is likely to grow well below its long-term growth rate in 2015. It will be closer to 2.5 percent than the 3 percent it has registered over the last twenty-five years. While some parts of the developing world will see a significant increase in living standards, unemployment in advanced countries will decline at a glacial pace.
Even in the recovering U.S. economy—one of the bright spots—there is no sign of a break in the trend toward higher inequality, so the vast majority of families will see only a small improvement in their take-home pay. But a strong dollar and lower gasoline prices will help keep a lid on U.S. prices in 2015, so many struggling American families will see a small improvement in their real purchasing power—the first in a long time.
China’s prospects are the eternal question mark, but still, Chinese growth over the last year of over 7 percent has provided considerable momentum to global aggregate demand.
Continued rapid growth in large parts of the developing world (China, India, Indonesia, and sub-Saharan Africa), recovery in the United States and the United Kingdom, loose monetary policies, smaller cuts in government spending, and falling oil prices are the engines that will propel the global economy forward in 2015. These engines are powerful enough to ensure that we will steer well clear of another global recession.
However, strong headwinds will slow progress. The eurozone and its closely integrated trading partners to the east and south, which together easily constitute the world’s largest trading block, is still a long way from emerging from its sovereign debt crisis. The crisis in Ukraine and a looming Russian recession as the country reels from the effect of collapsing oil prices, sanctions, and capital flight technically only have a small effect on European demand, but their implications for business confidence, especially in Germany, should not be underestimated. The effect of a sales tax hike appears to have had a devastating effect on the Japanese economy, which has lapsed into recession.
Last but not least, the impulse coming from many emerging markets has slowed, and some of them—such as Turkey, Brazil, and South Africa—remain exposed to a sudden stop in international capital flows in the event of policy errors or if, as expected, American policy interest rates are raised.
Read the full article: The World in 2015.
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