It’s that time of year again – the time when pundits and prognosticators are wheeled out to provide their predictions for the year ahead. One of the most comprehensive outlooks comes from Goldman Sachs, which offers 10 market themes that it expects will dominate in 2015. Let’s take a look.
1. The recovery will broaden worldwide
Global growth is likely to pick up in 2015 after a fairly weak 2014. Goldman predicts global growth of 3.4%, compared to 2014’s 3%. This is good news for most of the globe – better growth could mean improved employment prospects and incomes, and a better standard of living.
2. Developed markets will continue to diverge
Although world growth will accelerate, there will be a lot of variation in country-level performance. The US is anticipated to grow relatively strongly – the IMF, like Goldman, predicts growth of around 3.1% for 2015 – but other developed countries will deliver much weaker performances. Goldman expects the euro area to grow by just 0.9%, while the IMF anticipates 1.3% growth from that region. Japan is expected to grow by 0.9% according to Goldman, with the IMF expecting just 0.8% growth from the Asian nation.
3. Oil prices will fall, with widespread effects
Oil prices have plunged over the last six months; Brent crude fell from a June high of around $115 a barrel to its current levels of around $58. Goldman expects that we haven’t yet seen the bottom of the oil price collapse, and that prices will remain weak into 2015. This is good news for consumers, who will likely enjoy extra disposable income now that they don’t need to spend so much at the petrol pump.
4. Low inflation will remain a worry
The flip side of low oil prices is that they are feeding into the very low levels of inflation that we have seen, especially in developed countries, over the last year or two. “Lowflation”, or worse, deflation, threatens the economic recovery by discouraging investment, among other things. Persistent low inflation in developed countries will put pressure on monetary policy and make managing the recovery challenging in many places. It will also suppress commodity prices, which is bad news for commodity producers like South Africa.
5. The dollar will strengthen
With a strong US economic performance will come a strong and strengthening dollar. This could place pressure on many emerging markets that will see their currencies weaken against the dollar, possibly pushing up their financing costs and even prompting interventions in currency markets.
6. The Fed will hike, possibly more than expected
Against a backdrop of low inflation and a decent recovery, the Fed is likely to raise rate in 2015. Goldman expects rates to rise late in the year, and says that the increases may be higher than the market is anticipating. A Fed rate hike might create fresh problems for emerging markets, which were hit hard by the end of Fed quantitative easing this year.
7. China will continue to slow
The China story for 2015 will be much the same as 2014 – slower growth, rising challenges at home, and a continuing struggle to avoid the middle income trap. China will be focused internally, trying to build domestic demand, manage growth, deal with environmental and social challenges, and move the economy into higher-value production. The IMF predicts growth of 7.1% for China in 2015; Goldman expects a comparable 7%.
8. There will be more divergence in emerging market performance
With commodity prices and oil prices low and falling, 2015 will see divergence in the performance of emerging markets. Those that rely heavily on commodity exports, like South Africa, will have a rough year, while those that rely on manufacturing exports will probably benefit from the US recovery and enjoy a reasonably good 2015. Goldman expects India to grow at 6.3% next year (the IMF predicts 6.4% growth), commodity-exporting Brazil to grow at 0.7% (the IMF predicts 1.4% growth), and oil-reliant Russia to grow at 1% (the IMF predicts 0.5% growth).
9. Volatility will drop
Goldman anticipates that markets will likely experience less volatility in 2015 than they did in 2014. Prices will be more stable, which should make investment less of a roller coaster. However, relatively low growth in many regions will keep returns modest.
10. Returns will be low
As noted, volatility will be lower in 2015. However, the combination of low oil prices, low inflation, modest growth and divergent country performances will mean that on average, returns are low. Stable, but low. With the US stock market having run hard in 2014, and with assets elsewhere struggling to find momentum, Goldman expects that 2015 will be a low-return year.
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