Story Of The Week

World Economy 2015- The Reflection

The 2015 was a year of trials and tribulations for the global economy. The year was marked by major upheavals in the biggest economies of the world. On one hand, China was faced with the slowdown forcing it to devalue its currency while on the other hand, Federal Reserve in US raised the interest rates for the first time in nearly a decade. The oil prices came under serious pressure due to weak global demand affecting the oil exporting countries in a big manner. Although the cues globally were weak, 2015 was a year of change for India on the economic front with economy showing signs of recovery & improvement. This story aims to bring the brief of major economic events in 2015 & how things can pan out in the future.

Seven years after the world’s economy emerged from its deepest post war recession, a return to robust and synchronized globalization was elusive. Global growth achieved is 3.3% which is marginally lower than in 2014. The advance economies however picked up gradually whereas there was a slowdown in emerging economies.

In the 1st quarter of 2015- the economic growth was about 2.2%. This major shortfall was due to unexpected output contraction in the United States. Harsh winter weather as well as strong retrenching of capital expenditure in the oil sector contributed to weakening US activity. Growth in domestic demand as well as output in emerging and developing economies broadly weakened.

Second quarter of 2015 bought some positivity in the economy because of oil price which rebounded more than expectation that reflected higher demand. Price rose from $48.42 per barrel in January 2015 to $64.56 per barrel in May 2015 which helped in leveraging the world economic growth. However, with the rebound in oil prices, fuel end user prices had started rising. Yield of long-term sovereign bond had risen by 30 BPs in the United States and by 80 BPs on average in Euro zone excluding Greece. Higher yields reflected improving economic activities and bottoming out of headline inflation. In currency markets, the dollar had depreciated by some 2% while Euro has appreciated by about 1% but on comparing it with 2014, Euro and Yen were still at depreciating level.

Another major happening was Chinese stock market crash which began with the popping of the stock market bubble on 12 June 2015. Shanghai Stock Exchange was lost within one month of the event and major aftershocks on 24th August 2015’s “Black Monday.” After this Chinese market crash, devaluation of Chinese currency haunted the market. People’s Bank of China surprise market with three consecutive devaluations of the Yuan, knocking over 3% of its value.

2014           2015 2016 (Projected)
World output 3.4 3.3 3.8
Advanced Economies 1.8 2.1 2.4
United States 2.4 2.5 3.0
Emerging Economies 4.6 4.2 4.7
China 7.4 6.8 6.3
India 7.3 7.5 7.5
Table 1: Overview of the World Economic Outlook Projections

India seems to be one of the most promising countries in the world with dynamic growth rate of 7.5%. India’s economy picked up speed in third quarter with strong fixed investment growth and robust government spending geared up the acceleration, while private consumption remain sluggish. Fiscal policy remained supportive. Due to make in India campaign, FDI inflows improved. India became the top investment destination for Japan and many other countries. Japan is planning to open 11 industrial township projects along with India’s first bullet train with budget of Rs 98000 Cr. In December 2015, Japan agreed to provide US $12 billion for the project at a very low interest rate of 0.1% over 50 years.

Optimistic but Guarded 2016

With the advent of 2016, the world economy is projected to grow at a decent growth rate of 3.8%. However, the world may face economic summons on multiple fronts in 2016. As the U.S. Federal Reserve begins its monetary tightening, Europe is grappling to manage migrant crisis from Middle East and debt crises with Greece. Financial stability of China is in doubt, and emerging economies are increasingly fragile so there is speculation that global economy could be going much worse than 2015.

On the global upfront, once again the price of energy will be the most important aspect this year. In some ways 2016 is going to be a watershed year. Having flirted with deflation, most developed economies will now experience a return to their comfort zone and policymakers will return to put up interest rates in order to avert the danger of inflation and thus can help in attaining the projected growth rate.

Some of the unprecedented exercise of PM Narendra Modi has led to economic growth in the country. Recently Mr. Modi has set up eight groups of secretaries to come up with ideas to drive economic growth ahead of the budget and beyond it. Also India’s service firms clocked the fastest pace of output growth owing to strengthen demand that led to flurry of new orders. Schemes like “StandUp India” guarantee fund to back the Mudra Yojana to help small scale business. Thus 2016 seem to be promising year for Indian economy.

References

http://www.telegraph.co.uk/finance/comment/12079240/What-lies-ahead-for-the-global-economy-in-2016.html

http://www.indexmundi.com/commodities/?commodity=crude-oil-brent&months=60

http://www.theatlantic.com/international/archive/2016/01/global-economy-2016/422475/

http://www.imf.org/external/pubs/ft/weo/2015/update/02/

http://www.focus-economics.com/countries/india

http://articles.economictimes.indiatimes.com/2015-01-16/news/58149494_1_japanese-companies-fdi-inflow-japan-bank

https://en.wikipedia.org/wiki/Mumbai%E2%80%93Ahmedabad_high-speed_rail_corridor

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