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Country Forecast World Product Image

Country Forecast World

  • ID: 2101439
  • February 2015
  • Region: Global
  • 61 Pages
  • The Economist Intelligence Unit

The Economist Intelligence Unit is slashing its 2015 forecast for the price of dated Brent Blend, the global oil benchmark, to an average of US$54.40/barrel, from US$80/b. The oil market has undergone a dramatic shift in recent months as supply has increased, demand has weakened and Saudi Arabia has taken a hands-off attitude to the price declines. That said, we expect a modest recovery in oil prices later in the year.

We have raised our 2015 forecast for the value of the US dollar against the euro to an annual average of US$1.08:EUR1 from US$1.22:EUR1 previously. The US economy is growing rapidly, employment is soaring and consumer confidence is high. As demand climbs, investors are seeking out US assets. The prospect of an increase in policy interest rates by the US Federal Reserve later this year is also supporting the value of the dollar.

We are slightly raising our forecasts for real GDP growth in 2015 for several major economies, mainly because of the benefits of cheaper oil. We now expect the US and China to grow by 3.4% and 7.2% respectively in 2015, an increase of 0.1 percentage points for both compared with our previous forecast. We also expect slightly higher growth this year for Germany and France. We have cut our GDP forecast for oil-dependent Russia: we expect its economy to contract by 3.5% this year.

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Country Forecast World

Key changes since December 11th

World growth and inflation
A "Great Separation" is taking hold in the global economy
We are slashing our forecast for the average global oil price in 2015
We are again raising our 2015 global GDP growth rates for the US and China
Our underlying narrative is unchanged
Lower oil prices are badly damaging prospects for some energy exporters
The performance gap between the US and the euro zone is widening
The US economy continues to power ahead
Europe and Japan are drags on the global economy
Can the US continue to prosper while the rest of the world stuggles?
Investors are worried about slowing economic growth
China remains the global star, despite slowing growth
Political crises are an impediment to growth

World growth and inflation: Risk scenarios
Negative scenario-Economic stagnation and political populism prompt a euro zone break-up
Negative scenario-Policy deficiencies and a commodity price slump entrench the emerging-market slowdown
Positive scenario-A sustained decline in oil prices provides a global economic fillip
Negative scenario-Syria's civil war overwhelms its neighbours and threatens global security
Negative scenario-Russia's intervention in Ukraine escalates, leading to cold war-era tensions
Negative scenario-The US economy stumbles in the face of monetary tightening and political dysfunction
Negative scenario-Tensions over currency volatility lead to a rise in protectionism
Positive scenario-A rapid recovery in parts of the OECD drives global growth higher
Negative scenario-Economic upheaval leads to widespread social and political unrest
Negative scenario-A collapse in investment in the oil sector prompts a future oil price shock

Regional summaries: North America
Full steam ahead
Lower fuel costs will boost consumption
Business investment in oil-producing states will suffer
Janet Yellen, more than anyone, will shape the economy
US Treasury yields slide to a 20-month low
What is in prospect for Barack Obama in 2015?
Opportunities and breakdowns
What to watch for
Lower oil prices will hurt Canada's economy

Regional summaries: Japan
Shinzo Abe faces a pivotal year in 2015
The policy agenda remains the same
A planned rise in the consumption tax in 2015 has been postponed
The BOJ will keep monetary policy ultra-loose
Economic growth will underwhelm in 2015

Regional summaries: Western Europe
Political fears could reignite in 2015
A "Grexit" is still unlikely in the short term
Sovereign QE is on the cards as Germany steps aside
Fiscal policy will remain tight
Euro zone posts meagre growth in Q3
Unemployment remains stubbornly high
New Crimea sanctions leave EU-Russia position unchanged
Austerity in the UK will bring political challenges in 2015

Regional summaries: Transition economies
Ukraine will continue to cloud the region's prospects in 2015
Falling oil prices amplify disinflationary trends
Intense pressure on the rouble forces Russia into an emergency rate increase
The prospect of an end to bank deleveraging in 2015
Lower oil prices and sanctions will hit the Russian economy hard
In Ukraine a collapsing currency calls into question debt sustainability

Regional summaries: Asia and Australasia (excl Japan)
Asia will grow steadily, with ASEAN and India offsetting China's slowdown
Medium-term growth prospects would benefit from structural reform
The Chinese economy shows signs of stabilising
The economy requires some complex changes
Tension in Xinjiang and Hong Kong demands the attention of officials
The Modi administration has made a reasonable start
Falling energy costs enable a loosening of Indian monetary policy
The new government in Indonesia needs to boost economic growth
The new constitution in Thailand will be drafted by an exclusive club
Australia's economic shift towards commodity exports will pose problems

Regional summaries: Latin America
As in 2009 Mexico's oil hedging programme pays off
Banking systems are likely to experience stress as interest rates rise
Brazil's central bank surprises markets with a post-election rate rise
Growth remains slow in Mexico but should quicken over the medium term
Dilma Rousseff starts her second term with a bulging in-tray
Concerns about payment risk in Venezuela

Regional summaries: Middle East & Africa
Lower oil prices will be felt across the Middle East and North Africa
Non-oil exporters could lose out from lower regional transfers
Looming threats to African growth, but the picture is generally positive
African countries are becoming more dependent on global capital
There is a chance of political collapse in Nigeria
Even assuming that relative stability is maintained, troubles still lurk

Exchange rates
We are changing our US dollar:euro exchange rate
Swiss central bank ends forex ceiling against the euro
The yen is depreciating as the BOJ boosts its QE programme
The shift to US dollar strength
Emerging-market currencies may come under pressure again
Despite pressures on emerging-market currencies, a crisis is not inevitable

World trade
2015 will see an improved picture for global trade
Russia and EU trade dispute will hurt growth and trade
The stand-off ends over the limited WTO trade deal
The focus turns to major regional trade deals
Euro zone bank deleveraging is slowing, as outlook for trade finance stabilises
Structural changes in international trade will ease global imbalances

Commodity prices
Oil prices are in a rout, with no clear sign of the bottom yet
Supply will continue to expand despite the low prices
Commodity prices are on a downward path
Metal markets will see only muted gains as a whole as copper shows weakness
El Niño risks have tempered recently

Global assumptions

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