Expect the U.S and U.K. economies to continue the current healing and growth process, accompanied by eased stimulus; Europe and Japan will likely face headwinds despite the monetary expansionism of their central banks, and emerging markets are expected to deliver ongoing tepid growth, with each country facing its own limitations.

The United States leads the global economic recovery as corporate profits maintain stable growth, unemployment falls below 6%, and both inflation and interest rates remain low. In the U.K., a steady recovery now confronts signs of cooling in the London housing market, and wage increases remain elusive. Inflation there has been lower than anticipated, but that is a natural result of low rates of interest and credit growth. Unemployment has fallen faster than expected over the past year and is now below 6%. The primary downside risk to Britain’s recovery is the continued weakness in Europe, which may infect Britain because of their very close economic ties.

Turning to the Eurozone, weak economic data continues to come out of the continent, as fears of deflation increase. The European Commission again lowered its growth forecast and the European Central Bank (ECB) indicated it will continue to take measures to stimulate growth. However, with rates already at 0.05%, the ECB could be running out of levers to pull. It remains to be seen if the ECB’s announced asset purchase – starting with asset-backed and possible non-financial corporate debt – will be enough to stimulate growth and counter deflationary pressure.

The Euro is likely to come under continued pressure, primarily because of the fundamental differences between the various economies that are artificially tied together under its banner. Germany has the wallet but not the will to spend – while for Greeks it’s the other way around.
Putting a further drag on a global recovery are the “BRIC” nations – Brazil, Russia, India and China – as well as Japan and parts of the Middle East. That leaves three of the big four economies – Eurozone, Japan and China – still trying to get a footing on a recovery or, in the case of China, facing slower economic growth.

In the second quarter of 2014, Japan’s economic upswing – largely prompted by “Abenomics” – came to an abrupt halt triggered by a damaging hike in the consumption tax. During the third quarter, Japan slipped into a surprise downturn and has now experienced two consecutive quarters of decline meaning that Japan has just entered its fourth recession since 2008.

The worrying statistic out of Japan is that they are now selling more adult diapers than children’s diapers because of the aging demographics. In fact the 2 largest Japanese paper companies—Daio, and Nippon Paper—are currently expanding their manufacturing facilities for what are politely called “incontinence products” Japan has the highest percentage of over-65s in the world, making up more than 20 percent of the population. Several countries in Europe are on the same trajectory. Despite the stimulating policies of “Abenomics”, Japan seems to be unable to decisively move beyond the stagnation of the past 2 decades.

Emerging Market growth is expected to slow, and spotty. The wild card is China where every attempt at government stimulus seems less and less effective in boosting the economy. There is stark inequality of wealth and opportunity within the societal and economic structure; and the chicanery and accounting misrepresentations by Chinese companies and government organs mean that whatever data we are fed is usually unreliable and misleading. Many believe that the actual Chinese Gross Domestic Product is one-third lower than official statistics indicate. Beginning in 2008 China began to counter the global financial crisis by investing heavily in redundant industrial capacity and vanity infrastructure. They have empty buildings and barely-used airports. Banks do not write down bad debts and the troubled shadow banking system is unregulated. The increasing outward flight of capital by corporations and wealthy individuals is a possible early warning signal.

China now faces to 2 serious challenges: Absorbing the massive write down of debts within the banking and broader financial system; and managing the beginnings of the transition from a manufacturer to a consumer-based society. Because of its centrality to the global economy, watching China closely will be essential in 2015 and beyond.

Latin America is expected to remain healthy. Even with overall growth in the region likely coming in slower than estimated, foreign capital flowing into emerging markets is expected to be robust. In June, the World Bank’s global outlook estimated GDP growth for the region to reach 2.9% in 2015, up from an expected 1.9% for this year. But, recent weak economic data out of Brazil (including real GDP contraction over the last two quarters), potential weakening of the Brazilian Real, and uncertainty in the current post election environment, show analysts now expecting little GDP growth in 2015.

Russia is heading into a recession and Moscow’s Economic Ministry recently predicted a contraction of the economy of .8% in 2015. Central bank efforts to support the Ruble have been unsuccessful as it keeps reaching new lows. Oil exports provide 65% of Russia’s fiscal budget and the 40% decline in price together with ongoing trade sanctions are having a devastating effect on the economy. The Micex Index (tracking Russia’s 50 largest listed companies) is down over 30% in 2014 through early December.

A symptom of the sub-par performance of the global economy over the past three years – in both developed and (especially) emerging markets – is the stagnation of world trade. Exporters and resource-rich countries have been badly affected, with a resulting decline in their currencies. The International Monetary Fund predicts a global economic growth rate of 3.2% for 2015 but the road ahead is an uphill journey with uneven distribution of gain and pain among the various countries and industries.


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