Business

Global economy should be on the up in 2015

Analysing business growth Image copyright Thinkstock

What prospect does the New Year hold for the world economy?

The outlook that emerges from many forecasts is perhaps best described as "not bad", though inevitably there are risks, some of them quite substantial.

The International Monetary Fund, for example, predicts global growth this year of 3.8% compared with 3.3% in 2014.

That is not boom-time, though it would be the fastest growth since 2011.

There is often a "but" that comes with comes with an economic forecast, and this time there are quite a few.

One of them is a development which might actually be a boost for most of the world.

It's the price of crude oil which has fallen by nearly half from the high it reached in June.

For most countries it means consumers have more to spend on other things and it reduces business costs.

Of course the price decline is bad news for oil exporters and it has already hit Russia hard.

US strength

The main source of strength expected by most forecasters is the US.

The IMF reckons economic growth there is likely to be almost a full percentage point faster than 2013. It says a stronger housing market and business investment suggest the rebound is becoming more sustainable.

That raises one of the big issues for the coming months.

Image copyright AFP
Image caption The US economy has been growing faster than previously forecast

The continued recovery in the US means the country's central bank, the Federal Reserve will probably raise its main interest rate, which has been close to zero for six years.

Stronger economic growth and increasing spending can lead to higher inflation, which can be contained by higher interest rates.

A senior Fed official, Bill Dudley acknowledged that this change "will undoubtedly be accompanied by some degree of market turbulence".

Higher interest rates would make American markets more attractive to investors, so funds could be pulled out of other countries especially emerging markets.

The danger is that it might happen in a disruptive way that leads to sharp currency declines, higher inflation and rising borrowing costs for governments and business in developing countries.

Mr Dudley, however, said that many emerging economies appear better equipped to handle the Fed's move than they were in past.

China slowdown

China is another important factor. The country's economic slowdown is likely to continue: that is almost universally seen as inevitable sooner or later.

China has been driven by investment and export performance that couldn't last for ever.

Image copyright AFP
Image caption The boom years have ended in China

All the same, adjusting to a slower growth rate will present challenges both for China itself and for countries that sell goods to Chinese industry - raw materials suppliers in Africa among them.

Jan Hatzius, chief economist at the investment bank Goldman Sachs expects "several years of declining growth rates" for China.

And now there is new uncertainty about the eurozone as Greece prepares for an early election.

Financial markets in other financially stressed eurozone countries, notably Italy and Spain, wobbled as political events in Greece unfolded.

There is some risk that serious financial instability could spreading from Greece to other countries, but the dangers are seen as less severe than at the height of the eurozone crisis.

The political crisis in Ukraine could yet could yet do wider economic damage, and if the problems in the Middle East disrupt oil production they could send the price of the commodity back up.

There are certainly some rumbling sources of potential trouble and little prospect of really strong growth year, but there is a decent chance that 2015 will be another year of gradual post-crisis rehabilitation.