2015 has already kicked off with an uptick in global economic and market volatility.
Crude is crashing, iron ore has turned lower once again, copper is much weaker than late 2014 and PPI deflation is spreading into consumer prices around the world.
It speaks of a confused and confusing outlook for stocks, commodities, bonds and currencies in the year ahead.
Against this backdrop, the World Bank’s latest semi-annual Global Economic Perspectives report makes for sobering reading.
While the report says global GDP growth is estimated to increase to 3% in 2015 from 2.6% in 2014 it notes that:
The global economy is still struggling to gain momentum as many high-income countries continue to grapple with the legacies of the global financial crisis and emerging economies are less dynamic than in the past.
But there is one paragraph in World Bank chief economist Kaushij Basu’s foreword to the full report which should send chills through traders faced with a huge increase in uncertainty and, as a result, volatility this year.
Risks to the global outlook remain tilted downwards. Weak global trade growth is anticipated to persist during the forecast period, potentially for longer than currently expected should the Euro Area or Japan experience a prolonged period of stagnation or deflation. Financial conditions could become volatile as high-income economies tighten monetary policy on diverging timelines. Rapid reassessment of risk could also be triggered by a spike in geopolitical tensions, bouts of volatility in commodity markets, or financial stress in major emerging market economies. Worryingly, the weak recovery in many high-income economies and slowdowns in several large emerging markets may be a symptom of deeper structural weaknesses.
As if to add icing to the cake, Basu adds: “Developing countries face significant policy challenges in an environment of weak global growth and considerable uncertainty.”
Uncertainty is poison for consumers, business leaders and investors.
2015 looks like it is going to be an interesting year.
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