Global growth in 2015 was the slowest since the financial crisis year 2009. The deceleration was due to difficulties in the emerging economies, with for example the Russian and Brazilian economies slipping into deep recession. Of the BRICS countries, which were the growth miracles at the beginning of the new millennium, only India’s prospects have not deteriorated.
The weak performance of the emerging economies is, in part, accounted for by the substantial fall in the price of oil. Slower global growth and a more efficient overall use of energy have reduced demand for oil. Meanwhile, supplies of oil have remained abundant, as declining investment does not affect production immediately. Financial market uncertainties have also had an impact on the fluctuations of world market prices for oil.
The growth outlook for the global economy is not signalling any strong improvement in the immediate years ahead. The Bank of Finland forecast foresees global growth in 2016 remaining at 2.8%, from which it will accelerate to 3.2% in 2017–2018. The pick-up in growth reflects recovery in the emerging economies suffering from the recession.
The forecasts for the United States and the EU22 are more moderate than previously, but the growth projected is still above their estimated potential growth rates. The US economy is expected to grow by a good 2% in the immediate years ahead. The driving force of growth will be private consumption, bolstered by good employment dynamics. The prospects are clouded by weak international trade, the earlier appreciation of the dollar and ongoing modest increases in nonresidential investment. In the EU22, the low price of oil and monetary policy are underpinning growth. The internal fundamentals of the economy have not changed and are supportive of growth. Near-term growth will depend more on domestic demand than previously.
In China, growth continued to slow down in 2015. Despite negative market reactions, there have been no major changes in the long-term outlook for economic activity. Moderate slackening of growth will continue and structural changes in the economy will move ahead. The growth forecast for 2016–2017 remains unchanged at 6%, from which growth will edge down to 5% in 2018.
World trade growth has already been weak for nearly 10 years. In the short term, this has been due to the fading of intra-EU trade, the slowdown of growth in China, the sluggishness of investment in the advanced economies and the low level of commodity prices. With the share of industrial products in world trade contracting and the fastest phase of integration of China as well as of Central and Eastern Europe now over, world trade will no longer increase, relative to global growth, with the same vigour as seen earlier.
For further information, please contact Samu Kurri, Head of Division, tel. +358 10 831 2288.
For further information, please contact Samu Kurri, Head of Division, tel. +358 10 831 2288.
The package of articles on monetary policy and the international economic forecast will be published in English in early April at www.bofbulletin.fi.