5 graphs on the key developments in the world economy in 2015.
The Chinese economy has been slowing down for several years now, and continued to do so in 2015. However, fears about the state of the economy really picked up when the Chinese equity market collapsed during the Summer. The near 50% market correction followed a spectacular equity rally in the previous 12 months. As the market had decoupled from the real economy in this boom-bust move, the correction was not a genuine reflection of the overall state of the Chinese economy. That said, concerns about China are valid, and are likely to remain an ongoing issue.
On the back of weaker demand out of China, but also because of supply issues, commodities had another dismal year. The oil price fell to the lowest level since 2004. The fall in commodity prices causes serious problems for a wide range of commodity exporters, with deep recessions in Russia and Brazil as the most obvious examples. On the other hand, there are also winners from lower commodity prices, with consumers in developed markets as the most notable.
After talking about it for quite a long time the Fed finally took its first step towards higher interest rates at its December policy meeting. After seven years of Fed policy rate basically at zero, this was quite a special move. Further rate hikes will follow, but the first phase of the rate hiking cycle shouldn’t impact the real economy too much. That said, it remains to be seen what the end of the era of free money will bring, both for the economy and for financial markets.
While the Fed was talking about the upcoming rate hike for most of the year, the ECB finally launched its own long overdue program of quantitative easing. And in December it even extended the original program. Thanks to the impact of this (through the weakening of the euro), but just as much (or more) thanks to lower commodity prices, the end of severe fiscal tightening and recovering housing markets, the Eurozone economy finally looks set for a decent recovery.
Even if the economic climate in the Eurozone has been improving of late, there is still substantial divergence throughout the region. One reason for concern is the increasing divergence between Germany and France. While the former is looking at full employment, unemployment in the latter is at a more than 15 year high. Moreover, the economic issues in the Eurozone are being reflected in increasingly difficult political outcomes.