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The global economy had its projections cut by the World Bank, saying that the United States will not be able to hold up the global economy alone. The global economy is now projected to grow 3.0% this year, rather than the 3.5% that was formerly projected. However, the United States had its projection increased from 3.0% growth to 3.2% growth. The World Bank cited Europe, Japan, Russia, and parts of Latin America as the source of the struggles leading to the lower projections. While oil prices are low, developing economies who import oil will receive a boost. However, oil exporters will continue to struggle, especially Russia, due to the low price of oil.
Europe has been driven into deflation and unemployment remains near record highs, keeping investors on edge. Greece also has an election later this month that could bring its fragile economic recovery to a halt, and potentially risk another Eurozone crisis. Russia has been struggling while the country hesitates to lower interest rates, leading to a potential wave of bankruptcies hitting the country. As the ruble collapses and oil prices plunge, inflation has been driven up and companies are unable to keep up. Companies are unable to borrow money with such high rates, and therefore are having to shut down operations in some cases. For Japan, the fear comes in the decrease in population that took place last year. Just over one million babies were born in Japan last year, while 1.27 million people died in Japan last year. The shrinking population limits economic growth as workers and companies struggle to pay for the elderly.
All of these situations played a major part in the decision made by the World Bank to cut growth projections. The World Bank’s chief economist, Kaushik Basu, was quoted as saying, “The global economy is running on a single engine…the American one. This does not make for a rosy outlook for the world.” It will take a rise in oil prices as well as regulatory actions by some of these struggling governments in order to continue the recovery of the global economy. How do you think the global economy will perform in 2015? What do you think needs to happen to retain strong growth?
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