US Growth Acceleration Will Lead World Economy
World Economy

US Growth Acceleration Will Lead World Economy

The United States is back, and ready to drive global growth in 2015. After long struggling to claw its way out of the Great Recession, the world’s biggest economy is on an extended win streak that is edging it closer to full health. But the new year doesn’t look quite so bright in other major countries.
China is slowing as it transitions from investment to consumption. Japan has slid into a recession. Russia appears headed for one. Europe is barely growing, AP reported.
And the US? Six years after its financial system nearly sank and nearly that long since the recession ended, the United States is expected to grow in 2015 at its fastest pace in a decade. Its expansion from July through September – a 5 percent annual rate – was the swiftest for any quarter since 2003.
That pace will likely ease a bit. Still, the economy is expected to expand 3.1 percent next year, according to a survey by the National Association for Business Economics. It would be the first year of 3 percent growth since 2005.
The acceleration of US growth is a key reason the global economy is also expected to grow faster, at about 3 percent, up from 2.5 percent in 2014, according to economists at JPMorgan Chase and IHS Global Insight.

  Cheering Cheaper Oil
Plunging oil prices are a big reason for the optimism. Prices have been cut roughly in half since summer. In some areas of the country, gasoline prices have slipped below $2 a gallon. The drop, along with more fuel-efficient cars, will save the average US household $550 on gas next year, according to the US Energy Information Administration. That means consumers have more to spend on items like cars, furniture and appliances.
What’s more, Americans’ finances are in firmer shape. Job growth is accelerating. Businesses are investing in buildings and software, and home building is expected to pick up.
Lower oil prices will also help Europe and Japan, and the global economy should expand faster than it did this year, economists say. But the divergence between the United States and most of the rest of the world is striking and carries some risks. Big exporters, from China to Germany to Japan, will depend heavily on a recovering US to boost their economies.
A pickup in global growth “is highly dependent on the assumption that the US economy continues to improve,” said Douglas Porter, chief economist at BMO Capital Markets. “If that doesn’t play out, there’s not much left for the global economy to fall back on.

  Swirling Global Headwinds
Even if the US economy does strengthen further, the rest of the world could struggle. For one thing, faster growth will likely lead the Federal Reserve to raise interest rates in 2015, which could draw more investment from overseas. The inflow of capital would raise the dollar’s value and potentially cause destabilizing drops in other currencies. Governments and businesses overseas that borrowed in dollars would find it harder to repay those debts.
The hot economies of the last decade – the emerging markets of Brazil, Russia, India and China collectively known as the “BRICs” – will likely grow in 2015 at their slowest pace in six years, according to Oxford Economics, a forecasting firm. Falling oil and commodity prices have smacked Brazil and Russia particularly hard.
China may expand 6.5 percent or more. Yet that’s a far cry from the nearly double-digit growth it enjoyed for decades. Europe and Japan will be lucky to expand even 1 percent.
The global economy’s biggest wild card next year might be Japan. It slid into recession last quarter after a sales tax hike hammered consumer spending. Prime Minister Shinzo Abe has delayed a second increase to 2017.


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