OUTLOOK 2015: Three themes shape the 2015 macro landscape

OUTLOOK 2015

Three themes shape the 2015 macro landscape

Three main themes are likely to shape the global macro landscape in 2015: disinflationary growth, monetary policy divergence and growing emerging market differentiation.

Disinflationary growth

The effects of a disinflationary shock from lower commodity prices seen in 2014 should lend support to global growth in 2015. Lower inflation will boost global consumption and allow many central banks to keep policy loose. We expect the US to continue growing at a solid pace, on the back of renewed housing acceleration and stronger consumption, as lower energy prices provide a boost to real disposable incomes. The outlook for the euro area and Japan will remain challenging. In Europe, we expect a moderate growth pick-up – supported by the weaker euro, improving external demand, the ECB’s easing measures and a moderately lower fiscal drag. Should the cyclical picture deteriorate, however, the ECB is likely to do more. In Japan, the BoJ’s additional easing measures could help boost inflation, but they are unlikely to have a meaningful impact on the real economy. Monetary policy is not a silver bullet, and both Japan and Europe must also address the issues of low productivity and low growth expectations through structural reform.

Monetary policy divergence

The divergence of central bank monetary policy around the world has become clearer in 2014, and we expect this theme to continue in 2015. But there are limitations to how far it can go. Currency and interest rates are likely to act as equilibrating mechanisms, constraining the impact of differences in central bank policy. As the BoJ and ECB continue on their easing paths while the Fed is moving closer towards normalising rates, further strength in the US dollar would contribute towards moderate tightening in US financial conditions, lifting pressure off the Fed to hike rates for some time.

Emerging market differentiation

The recovery has been sluggish and uneven in emerging markets, with some countries performing better than others, and this differentiation is likely to become more pronounced during 2015. EM growth will continue to be influenced by a variety of factors, including exposure to the US and China, dependency on commodities and progress on structural reform. Broadly speaking, emerging markets with close links to the US, rather than China, are likely to deliver better growth outcomes as the US economy continues growing at a solid pace. Countries like Mexico and Korea, with closer ties to the US, are better positioned in this respect relative to countries like Brazil and Indonesia, which are more vulnerable to China’s continued slowdown.

In the environment of sustained low commodity prices, dependency on commodities is another key factor, where net importers like India and Thailand can benefit from lower prices, while exporters may continue to suffer. Perhaps most important to longer-term growth success is structural reform. Now, and throughout 2015, EM countries are at a crossroads: face up to the urgent structural reforms needed to improve growth prospects internally, or risk spiralling further into a state of sluggish growth. It is the progress on structural reform that will help separate winners from losers over time.

As always, there are risks to this outlook. Key risks for 2015 would be a hard landing in China, further geopolitical tensions, and a surprise acceleration in US inflation which could cause the Fed to tighten earlier than expected. A hard landing in China would pose further problems for commodities and global growth more generally, impacting emerging markets to varying degrees. Geopolitical problems, for instance the Russia-Ukraine conflict or tensions in the Middle East, also have potential to continue, and these could weigh on specific regions in 2015. Anna Stupnytska is the Global Economist at Fidelity Solutions. Before joining Fidelity in July 2014, Anna was a macroeconomist at Goldman Sachs Asset Management. She holds a degree in Economics from Cambridge University, and a Masters of Philosophy in Economics from Oxford University.

Anna Stupnytska is the Global Economist at Fidelity Solutions. Before joining Fidelity in July 2014, Anna was a macroeconomist at Goldman Sachs Asset Management. She holds a degree in Economics from Cambridge University, and a Masters of Philosophy in Economics from Oxford University.

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