World Economy

health of the world’s important economies diverging

health of the world’s  important economies diverginghealth of the world’s  important economies diverging

As we step into 2015, it would appear that on the back of a US economic recovery, the dark days of the financial crisis are behind us. As the largest economy, accounting for more than one-fifth of global gross domestic product, the health of the US economy has been critical for steady growth in the rest of the world through trade, foreign investment, financial markets and capital flows. Until now.

But, as recent developments have shown, going ahead, there are many more variables that will impact the global economy. Leave aside the fact that the International Monetary Fund has projected the global economy to grow by 3.8 percent in 2015, a little better than the estimated pace of 3.3 percent for the previous year, AsiaOne Business reported.

Europe continues to deleverage with serious risks of falling back into a recession, Japan’s prospects remain clouded despite “Abenomics,” China’s growth is slowly throttling back, and Latin America and Southeast Asia remain a mixed bag, while India’s growth prospects are up in the air. The health of the world’s important economies is clearly diverging, and to understand this better we need to look at the prospects in all the major economic blocs.

  Long Way to Go

Across the Atlantic, except for the United Kingdom, which is experiencing steady growth that will likely continue, the situation in the European Union does not appear too rosy. The eurozone is back in an economic rut with Germany, France and Italy still battling depression-era levels of unemployment and the threat of deflation.

It appears that the European banking system has never really recovered from the financial crisis. As such, Europe’s slow economic recovery, which began in the second quarter of 2013, remains fragile.

The German economy grew by 0.1 percent in the third quarter of 2014. Another quarter of contraction would have meant that Germany was officially in a recession. France reported 0.3 percent GDP growth, rebounding from a 0.1 percent decline in the second quarter and thereby avoiding falling back into a technical recession. Italy was not so lucky, with a contraction of 0.1 percent confirming that the economy has entered a technical recession.

As regards the UK, although the economy is in a recovery phase, household indebtedness is high and the fiscal position weak.

  Gloomy Situation

The disappointment continues in Japan. Its economy shrank an annualized 1.6 percent in Q3 2014, confounding expectations of a modest rebound after a severe contraction in the previous quarter.

The situation in BRICS is a mixed bag, and the foundation appears a little shaky.

Brazil’s economy officially exited recession with growth of 0.1 percent in the third quarter of 2014.

Russia’s energy-dependent economy has suffered a severe economic shock over the past few months, largely because oil prices have tanked. The conflict in Ukraine and the international sanctions have also weighed heavily on the economy, which is forecast to be flat next year. The weaker ruble and Russian countersanctions on western food imports are likely to push up inflation and hold down household consumption. The ruble has already lost close to 50 percent in value.

The situation is different for India. Confidence in the economy has soared in recent months under the leadership of its Prime Minister Narendra Modi. GDP growth in the third quarter of 2014 slowed to 5.3 percent from 5.7 percent in the previous quarter. However, this was better than expected.

China is having trouble maintaining the kind of growth it has become accustomed to in recent years. Its economy grew at 7.3 percent during the third quarter of 2014 compared with a year ago, slightly exceeding expectations.

South Africa for its part is battling strikes, higher interest rates, rising inflation and weak demand, which will weigh down its economy. The GDP in South Africa expanded 1.4 percent in the third quarter of 2014 over the previous quarter.

  structural problems

The World Bank has projected that Thailand will generate the lowest economic growth in the region next year because of structural problems in the export sector and unresolved political issues. Southeast Asia’s second-largest economy grew 1.1 percent in the third quarter of 2014, from the previous three months, and 0.6 percent from a year earlier.

Malaysia is likely to remain on a sustainable growth path. Its economy posted growth of 5.6 percent in the third quarter of 2014 from the corresponding period a year ago, slowing down from the 6.2 percent in Q1 and 6.5 percent in Q2.

Indonesia’s gross domestic product grew 5.01 percent in the third quarter of 2014 from a year earlier, its slowest in five years.

Singapore’s economy expanded by 2.4 percent in the third quarter of 2014, unchanged from the previous quarter.

Australia’s economy, though, grew at a slower-than-expected pace in the third quarter of 2014, at 2.7 percent, underscoring growing concerns about its outlook and calls for the central bank to undertake easing measures.