Q&A: The Global Economy in 2015

Our recent webinar “The Global Economy in 2015” explored the key risks facing the global economy this year along with in-depth profiles of the world’s largest economies. Attracting more than 600 attendees, the webinar ended with a thought-provoking Q&A session. Highlights of which are below.

 

Do you think that European attitudes towards slowing down immigration will negatively impact the eurozone in the next 5-10 years? ­

Yes, I do think that if European attitudes towards slowing immigration continue, this will negatively impact the eurozone. The big problem is the fact that the region has the challenge of an ageing population. Germany, Italy and Greece are already amongst the world’s oldest countries in terms of the mean age of their population and these trends are set to become more acute. Labour markets will therefore be under growing pressure to carry the burden of an ageing population and to support their care and pension systems in the future. One way round this and to maintain productivity is to open up to immigration in order to increase the labour force – so if attitudes towards immigration are closing, then the ageing shift could become even more of a ticking time bomb.

 

Will the increasing rise of terrorism and radicalism be a show-stopper for developed economies?

The rise of terrorism and radicalism will not be a “show-stopper” for developed economies. Certainly, it is having an impact and creating a new world order in terms of heightened tensions, changing mind-sets, debates about freedom of expression, the increased need for security etc. The September 11 terror attacks in the USA, for example, did not have a long-term economic impact. There was more of an immediate dip in terms of tourism and air travel in the aftermath of the attacks but the US economy showed resilience. Developed economies are generally beginning to strengthen following the global economic downturn of 2008-2009 and the many advantages that they offer investors in terms of skills, ease of doing business, competitiveness and lack of corruption will continue to keep investors interested helping them to “punch through”.

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How do you see the birth of the AEC (ASEAN Economic Community) affecting the world economy? ­

I don’t think the world’s economy will be feeling any impact of the AEC establishment any time soon. There is a lot of scepticism as to whether or not the ASEAN would in fact be able to meet its end-2015 deadline, and even if it does, there will still be a long process of negotiation among member states on all aspects of the economic community and its implementation. The reasons behind this include the fact that national interest and competition among regional players are strong and may impede regional integration; the absence of strong regional institutions to enforce compliance; and the mentality of “ASEAN way” of non-interference which could encourage non-cooperation.

 

What do you see the outlook for Ireland in 2015?

Ireland is one of the economies which is bucking the eurozone stagnation trends and experiencing an economic revival since 2014. We forecast real GDP growth of 3.0% in 2015 which will make it the fastest growing eurozone economy – with growth more than the double the eurozone average of 1.1%. The construction sector has recovered and business investment and exports are driving growth. The US recovery should also help to boost growth in Ireland, as Ireland is home to a large number of multinationals especially US firms. However, unemployment remains in double digits with an especially problematic youth unemployment rate, while the high level of household debt is also a challenge.

 

How will Brazil’s slowdown impact on its Latin American neighbours?

Argentina, Bolivia and Paraguay have the biggest trade linkages with Brazil, with Brazil the destination of 21.3%, 33.0% and 30.0% of their exports respectively in 2014. Of these countries Bolivia and Paraguay have the largest export sectors. For many economies in the wider region the performance of the US economy is the more crucial as trade linkages with Brazil are weak. Even for those most reliant on Brazil as an export market, there are other factors at play: Argentina’s domestic challenges are more of an issue than the Brazil slowdown, and for Bolivia the weak oil price is more important. Paraguay has good macro-economic fundamentals which will help it to ride out the slowdown in Brazil.

 

What do you see for Singapore in 2015? ­

We forecast that Singapore’s real GDP growth will rise to 3.2% in 2015 compared to 3.0% in 2014 so continuing the moderate growth trend. As with other oil importers, consumers and business will benefit from the drop in global oil prices, helping to improve input costs and profits for business and increasing spending power for consumers. Singapore is an open and export-dependent economy. The US recovery will help Singapore but the slowdown in China and the stagnation in the eurozone will act as a drag on demand. Weaker than expected productivity is proving a challenge for the economy.

 

Can you elaborate on the private sector reforms required for the Saudi Arabian economy to achieve sustainable growth? ­

The economy is in need of major structural reform in order to sustain growth and reforms to the private sector are needed to improve education and boost job creation. Lifting restrictions on FDI, pulling back government involvement in the economy to avoid crowding out the private sector and improvements to the business environment, particularly to make it easier to start a business and to tackle corruption, and to improve regulatory quality, would help to sustain growth. Opening up the stock market to international investors is a good step.

 

How will the low oil-price influence the rise of electric vehicles­?

It should have only a limited, short-term impact. It erodes the cost benefits of electric vehicles but we expect the oil price to go up in Q2 or Q3. The different incentives for electric vehicles (financially in the form of tax breaks and cash back schemes but also non-monetary benefits such as free parking and bus lane usage in Norway) are major factors. As is the increased consumer interest in sustainability. The oil price is just one of many factors driving purchasing decisions.

 

How will cheap oil affect South America? ­

In the region as a whole there are winners and losers, and prospects will diverge in 2015 depending on their reliance on commodity exports but also on their macro-economic fundamentals and the prospects of their major trading partners. Those that trade heavily with the USA for example are in a stronger position. Brazil, Argentina and Venezuela will struggle, but Costa Rica, Colombia and Peru have brighter growth prospects.

 

What is the outlook for Peru this year?

Growth should be rebound in 2015 to 4.6% and continue to strengthen in the medium term. Soft commodity prices are affecting the economy but strong macroeconomic fundamentals help it to withstand the shock. Some large mining projects are also completing and this too will boost growth. Finally, the middle class is bolstering growth in private consumption and will continue to do so.