US will power the world econ­omy in 2015

The China Post - - WORLD BUSINESS - BY CHRISTO­PHER S. RU­GABER

The United States is back, and ready to drive global growth in 2015.

After long strug­gling to claw its way out of the Great Re­ces­sion, the world’s big­gest econ­omy is on an ex­tended win streak that is edg­ing it closer to full health. But the New Year doesn’t look quite so bright in other ma­jor coun­tries.

China is slow­ing as it tran­si­tions from in­vest­ment to con­sump­tion. Ja­pan has slid into a re­ces­sion. Rus­sia ap­pears headed for one. Europe is barely grow­ing. And the U.S.? Six years after its fi­nan­cial sys­tem nearly sank and nearly that long since the re­ces­sion ended, the United States is ex­pected to grow in 2015 at its fastest pace in a decade. Its ex­pan­sion from July through Septem­ber — a 5-per­cent an­nual rate — was the swiftest for any quar­ter since 2003.

That pace will likely ease a bit. Still, the econ­omy is ex­pected to ex­pand 3.1 per­cent next year, ac­cord­ing to a survey by the Na­tional As­so­ci­a­tion for Business Eco­nomics. It would be the first year of 3 per­cent growth since 2005.

The ac­cel­er­a­tion of U.S. growth is a key rea­son the global econ­omy is also ex­pected to grow faster, at about 3 per­cent, up from 2.5 per­cent in 2014, ac­cord­ing to econ­o­mists at JPMor­gan Chase and IHS Global In­sight.

Cheer­ing Cheaper Oil

Plung­ing oil prices are a big rea­son for the op­ti­mism. Prices have been cut roughly in half since sum­mer. In some ar­eas of the coun­try, gaso­line prices have slipped be­low US$2 a gal­lon. The drop, along with more fuel-ef­fi­cient cars, will save the av­er­age U.S. house­hold US$550 on gas next year, ac­cord­ing to the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion. That means con­sumers have more to spend on items like cars, fur­ni­ture and ap­pli­ances.

What’s more, Americans’ fi­nances are in firmer shape. Job growth is ac­cel­er­at­ing. Busi­nesses are in­vest­ing in build­ings and soft­ware, and home build­ing is ex­pected to pick up.

Lower oil prices will also help Europe and Ja­pan, and the global econ­omy should ex­pand faster than it did this year, econ­o­mists say. But the di­ver­gence be­tween the United States and most of the rest of the world is strik­ing and car­ries some risks. Big ex­porters, from China to Ger­many to Ja­pan, will de­pend heav­ily on a re­cov­er­ing U.S. to boost their economies.

A pickup in global growth “is highly de­pen­dent on the as­sump­tion that the U.S. econ­omy con­tin­ues to im­prove,” said Dou­glas Porter, chief economist at BMO Cap­i­tal Mar­kets. “If that doesn’t play out, there’s not much left for the global econ­omy to fall back on.

Swirling Global Head­winds

Even if the U.S. econ­omy does strengthen fur­ther, the rest of the world could strug­gle. For one thing, faster growth will likely lead the Fed­eral Re­serve to raise in­ter­est rates in 2015, which could draw more in­vest­ment from over­seas. The in­flow of cap­i­tal would raise the dol­lar’s value and po­ten­tially cause desta­bi­liz­ing drops in other cur­ren­cies. Gov­ern­ments and busi­nesses over­seas that bor­rowed in dol­lars would find it harder to re­pay those debts.

The hot economies of the last decade — the emerg­ing mar­kets of Brazil, Rus­sia, In­dia and China col­lec­tively known as the “BRICs” — will likely grow in 2015 at their slow­est pace in six years, ac­cord­ing to Ox­ford Eco­nomics, a fore­cast­ing firm. Fall­ing oil and com­mod­ity prices have smacked Brazil and Rus­sia par­tic­u­larly hard.

China may ex­pand 6.5 per­cent or more. Yet that’s a far cry from the nearly dou­ble-digit growth it en­joyed for decades. Europe and Ja­pan will be lucky to ex­pand even 1 per­cent.

The gap be­tween the U.S. and the rest of the world re­flects a fun­da­men­tal trait of the U.S. econ­omy: It’s more in­su­lated from the rest of the world’s ups and downs than other ma­jor economies are. Ex­ports ac­count for just 14 per­cent of U.S. out­put, the small­est share among the 34 mostly rich mem­bers of the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment.

One U.S. company largely pro­tected from over­seas trends is Globe Spe­cialty Met­als, a Mi­amibased pro­ducer of sil­i­con met­als that draws 90 per­cent of its rev­enue from North Amer­ica. Its sil­i­con is added to alu­minum and rub­ber parts used in cars, and ro­bust auto sales have boosted the company’s rev­enue.

Pow­er­ing US Con­sumers

In the United States, con­sumers are the main driv­ers of growth. And for­tunes are look­ing up for more house­holds. Em­ploy­ers are on track to add the most jobs in 15 years in 2014. As a per­cent­age of in­come, Americans’ debt has dropped to 2002 lev­els.

In some ways, the U.S. econ­omy ac­tu­ally ben­e­fits from slower growth abroad. In­vestors in search of safety have plowed money into Trea­surys, thereby help­ing hold down in­fla­tion and U.S. loan rates, in­clud­ing for mort­gages. Lower rates, in turn, could fuel more home sales and con­struc­tion next year.

Stan Humphries, chief economist at Zil­low, thinks Americans ages 25 to 34, stung by higher rents, will buy homes in greater num­bers by the end of 2015. Mort­gage gi­ants Fred­die Mac and Fan­nie Mae have re­laxed their down pay­ment re­quire­ments, which were a strain for younger wouldbe buy­ers. Humphries also thinks de­vel­op­ers will build more low­er­priced homes that mil­len­ni­als can af­ford.

Some signs of hope over­seas have emerged. Fall­ing oil prices should ben­e­fit peo­ple in Europe, Ja­pan and China, all of which im­port oil. And an­a­lysts ex­pect the Euro­pean Cen­tral Bank to ramp up its stim­u­lus ef­forts, pos­si­bly by buy­ing gov­ern­ment bonds. That step would in­ject more cash into the econ­omy to boost lend­ing and keep rates low.

Doubt­ing Ja­pan

The global econ­omy’s big­gest wild card next year might be Ja­pan. It slid into re­ces­sion last quar­ter after a sales tax hike ham­mered con­sumer spend­ing. Prime Min­is­ter Shinzo Abe has de­layed a sec­ond in­crease to 2017.

Ja­pan’s cen­tral bank is buy­ing gov­ern­ment bonds and other fi­nan­cial as­sets in a bid to boost in­fla­tion and stim­u­late growth. Yet so far, wages haven’t risen in line with prices, thereby threat­en­ing con­sumer spend­ing.

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