Countries from around the globe are each in their own unique position. Here is our economic update:
As the U.S. rebounds, the world waits patiently for its next move.
The US economy continues to show signs of improvement, with unemployment falling to 5.1% in September and growth peaking at 3.7% in the second quarter of 2015. The positive economic data has somewhat quelled fears from emerging markets and the Eurozone, as the country starts to reap the benefits of combined expansionary fiscal and monetary policy mechanisms.
However, despite Washington’s relative resurgence, the tentative stance on breaking the shackles of zero interest rates is unlikely to change any time soon, with global deflationary concerns and market volatility playing on the Fed’s mind. From a domestic context, anticipated wage growth and a rise in consumer spending is a mere presumption, depending largely on the former.
Falling oil prices, increasing concerns about a Chinese economic slowdown and even speculation over the timing of the next rate hike itself have shaken domestic stock markets, which saw the S&P 500 fall by 6.03% in August and all major US benchmarks enter ’correction territory’ – defined as a drop of 10% from the most peak.
2015 saw the sudden devaluation of the Yuan, dampening export demand and bearish sentiment in the world’s second largest economy. The decline of Chinese economic growth from its lowest point in 20 years raises powerful implications for global economic and financial market stability. Despite exhibiting all the tell tale signs of a prospective devaluation with a rising US dollar and slowing growth, China shocked the world with a move that very few saw coming. Whilst the move is seen by many analysts as an attempt to boost languishing manufacturing export growth and support a gradual transition towards market orientation, it could ignite fears of further deflation and currency wars at a time of relative recovery in global markets.
In addition, the combination of a devalued currency and a slowing equity market has led analysts to believe the sustained boom in the country’s housing market (which together with construction directly accounts for 10% of GDP) is coming to a halt. Despite this, China’s property market is certainly far from a crisis, as household income and savings levels continue to maintain a steady pace in an economy projected to purchase 10 million new urban homes this year.
Europe & UK
Geopolitical volatility and continuing questions over Greece cast a dark shadow over the future of the Eurozone. Unemployment maintains a downward trend throughout the Eurozone reaching a three year low at 11% in August 2015, whilst growth remains stable.
Despite a substantial stimulus package launched by the ECB in March 2015, the overriding consensus is that growth, when coupled with deflation concerns, is still not strong enough to create the job opportunities needed throughout the Eurozone.
Whilst Germany showed continued resurgence growing by 0.4% in the last quarter, the risk of slowing export demand from the country’s third-largest exporter, China, remains ominous. In addition, the demise of Greece has led to increasing concerns regarding the sustainability of Italy’s growing public debt, with questions raised over the competence of the largely unpopular president, Mario Draghi. Further political instability may add to an atmosphere of uncertainty, as both the ongoing war in Ukraine and more recently, the large influx of migrants from the Syrian refugee crisis, pose challenging economic and financial dilemmas for member states.
The buck once again stops with Greece, as the Eurozone tentatively waits on the outcome of a new wave of creditor imposed austerity measures and economic reforms on Greece’s third bailout, worth €86 billion. However, analysts remain divided over the potential for a catastrophic ‘Grexit’ contagion after the economy surprisingly grew by 0.8% in the first quarter of 2015, with forecasts for year-on-year economic growth by mid-2016.