World economy to expand due to strength of U.S. economy

OTTAWA, Jan. 29, 2015 /CNW/ - Even with the majority of regions in the global economy underperforming for the third consecutive year, the world economy will grow by 3 per cent in 2015, according to The Conference Board of Canada's latest World and U.S. Outlooks. This will be due, in part, to the strong outlook for the U.S. economy.

"The United States is a net importer of energy, so lower oil prices will help the U.S. economy. In turn, a stronger U.S. economy will boost the fortunes of export-dependent countries," said Kip Beckman, Principal Economist, The Conference Board of Canada.

HIGHLIGHTS

• The global economy will expand by 3 per cent this year, following a 2.6 per cent gain in 2014.
• Global growth will be led by a stronger U.S. economy.
• Falling oil prices will benefit the U.S. economy but will hurt energy exporting countries such as Canada.

The sharp drop in gasoline prices to below $2 per gallon in many parts of the U.S. is the equivalent of a massive tax cut for Americans. This factor combined with a dropping unemployment rate and rising wages will help boost consumer spending in 2015. Overall, the U.S. economy is forecast to grow by 3.2 per cent this year.  

The Asia Pacific region, excluding Japan, is expected to expand by 6 per cent this year. China and other Asian countries should benefit from the drop in oil prices in 2015 as most countries in the region are net energy importers. This is especially true for China where lower oil prices could offset some of the drag on economic growth resulting from weaker housing activity and investment spending. Real GDP in China is forecast to expand by around 7 per cent this year.

Meanwhile, EU countries will continue to struggle with minimal economic growth expected in 2015. The exception is the United Kingdom, which has a flexible labour market and, unlike its EU neighbours, is not burdened with double digit unemployment rates. While most EU countries will benefit from lower oil prices and the significant QE program recently announced by the ECB, the sharp rise in uncertainty attributable to the election of the Syriza party in Greece and the ongoing difficulties in Ukraine imply that there are downside risks to the outlook. Real GDP in the euro zone is expected to grow by only 1.1 per cent this year, following growth of less than 1 per cent in 2014.

The outlook for Latin America is mixed as oil exporting countries such as Mexico and Venezuela will be negatively impacted. Venezuela will remain in recession over the near term and is also dealing with plus 60 per cent inflation.    

World oil prices are expected to rebound at the end of the year and rise above $55 per barrel as production, especially in North America, starts to decline.   

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SOURCE Conference Board of Canada