Although still impacted by the remaining legacies of the global financial crisis, world economic growth is expected to continue improving this year. High debt levels in the private and public sectors in many major economies, a weak labour market in the Euro-zone, and slowing growth levels in emerging economies – with the exception of India – are all keeping global growth below potential for the time being. This dynamic has been positively counterbalanced by lower crude oil prices, which have supported consumption in some of the advanced economies, removed budgetary constraints in some emerging economies, and allowed major central banks to maintain monetary stimulus and even
implement new measures. Global growth is forecast at 3.4% in 2015, slightly higher than last year’s 3.3%, mainly supported by the recovery in the OECD economies.
While the economies of the OECD are still facing various issues, their recovery since 2013 has been considerable with expected growth of 2.2% this year, after 1.8% in 2014 and 1.4% in 2013. The US is still the main growth engine within the OECD, although the Euro-zone slowly had continued to recover.
Japan, however, still seems to face problems taking off from its low growth trajectory. Major emerging economies – which are the main drivers behind oil demand growth – are facing challenges in the current year, with the exception of India. Russia’s economy is forecast to face a significant decline, while Brazil’s economic growth is almost stagnant. Moreover, China just recently confirmed that it is not expecting to achieve previous high growth levels. The continuing trend of slowing momentum has also become visible in recent manufacturing purchasing managers’ indices (PMI) for the major emerging economies. Russia and Brazil remain in contraction territory, while China is only slightly above the growth level of 50. Meanwhile, India is performing relatively well, but also has been slowing somewhat in its manufacturing sector.
Monetary stimulus has certainly played an important role in the global economic recovery in the past years and this role is largely expected to continue. The low interest rate environment in key advanced economies has encouraged foreign investments and higher growth in the emerging economies. In addition, the recent volatility in crude oil prices – as a target of investment flows – along with the strong appreciation of the US dollar, and even other more volatile currency movements, have all been significantly impacted by monetary policies. In the advanced and emerging economies alike, monetary policies could continue to cause unexpected outcomes affecting the global economy, including impacting world trade volumes and the direction of capital flows.
This is particularly the case given uncertainty regarding US Fed’s upcoming decision on monetary policy. Depending on the timing, magnitude and instruments used, this will result in varying impacts on different economies, as well as on the world economy as a whole, in the current year. While many challenges remain, the expected improvement in the global economy will also result in higher oil demand growth of 1.2 mb/d, above last year’s increase of 1.0 mb/d. Given that the bulk of the increment will be coming from the emerging economies, any positive developments in these countries can add to oil demand growth.