While longer-term factors remain in place to support accelerating economic growth, the world economy in 2015 was unable to break out of the recent pattern of steady but below long-term average growth. Moreover, GDP performance was unevenly distributed across countries. In particular, low commodity prices, political uncertainties, and financial market volatilities made it difficult for some countries to live up to their economic potential. Oil prices averaged around US$50 in 2015, roughly half the 2014 average value. Prices for many other commodities plummeted as well. Driven predominantly by supply-side factors, lower oil prices were likely a net positive for the global economy; yet, from a more nuanced perspective, while these lower prices have been a major benefit for some countries, they have created a formidable challenge for others.
Most advanced economies, such as those of the United States and the European Union, benefit from the lower cost of commodity imports and see their economies driven by strong consumer spending. But growth isn’t solely the result of low oil prices, as labor and housing markets have improved and monetary support remains strong — despite the US Federal Reserve raising interest rates for the first time since the Great Recession.
Among emerging markets there are many beneficiaries of lower commodity prices, as evidenced by China, where consumption remains strong and supportive of air travel growth amid a slowdown in aggregate economic activity. On the other hand, many emerging markets that are more dependent on export revenue from natural resource extraction are seeing increased economic pressure. In many cases, declining export revenue goes hand in hand with slower GDP growth, increased capital outflow, and depreciated exchange rates. In several countries, political uncertainties exacerbate the fragile economic situation and further reduce near-term growth prospects by lowering investment incentives. These developments highlight the need for many countries to diversify and reform economic systems to enhance and fully realize their growth potential.
Despite current challenges, IHS Economics sees global growth accelerating significantly and sustainably for the remainder of the decade. This acceleration will be led by a growth uptick in emerging markets and further sustained growth in large advanced economies. The latter, in particular, will benefit from central bank support, reduced economic-policy frictions surrounding European sovereign debt challenges, and the strengthening consumption effects of low energy prices in a global environment of plentiful but underutilized production capacity.