Overseas Problems Won’t Derail Growing US Economy, Analysts Say

Call it the Great Divide: 2015 figures to be a year of robust economic growth in the U.S., with slowdowns, stagnation and setbacks everywhere else in the world.

The list of global problems is indeed long and worrisome. Europe and Japan teeter on the edge of recession. Russia careens toward a full-blown economic crisis. China’s once-torrid growth is slowing faster than previously forecast. And many emerging economies are getting slammed by plunging oil prices.

All the overseas problems put together, though, are not enough to derail a strong U.S. economy, Wall Street analysts say. The Commerce Department stunned markets Dec. 23 by reporting that the nation’s total economic output grew at an annual pace of 5 percent in the third quarter. The result blew past an already-strong estimate of 3.9 percent.

“Spirits unleashed,” was how Mark Zandi of research firm Moody’s Analytics Inc. described the U.S. economy even before the final estimate for the third quarter came in.

The good U.S. economic news, forecasters said, will translate into solid but not spectacular returns in the stock market, which has been on a long bull run.

The Standard & Poor’s 500 index was up about 11.4 percent for 2014, its third straight year of gains since the Great Recession. Most forecasts call for returns to be about half that in 2015 and beyond.

Forecasts can always be wrong, of course, but 2015 begins with a set of unusually well-defined themes that, unless something dramatic happens, figure to play an important role in shaping the year’s global economic picture. Here are a few of them:

A STRENGTHENING US ECONOMY

Although the third-quarter Commerce Department report was a pleasant surprise, most forecasts call for gross domestic product — the value of all goods and services produced in the country — to be lower but still healthy near or above 3 percent. That’s a rate not achieved for a full year since the Great Recession.

The economy remains a long way from full employment, Zandi said, but job growth now averaging around 225,000 a month should be enough for the next 18 months to absorb the number of under-employed and unemployed.

Even before mid-2016, wage growth, long a missing ingredient from the U.S. recovery, should take hold and reach 3.5 percent before inflation over the next two years, around 2 percent after inflation.

Improved moods among consumers could mean more purchases of cars and other big-ticket items that already are back to pre-recession levels.

OVERSEAS STRUGGLES

U.S. economic strength is offset by weakness in Europe, where policymakers are contemplating further stimulus to ward off the risk of deflation — a debilitating condition of falling prices and wages.

Russia, the Eurozone’s third-largest trading partner, is near recession as it struggles with cheap oil and international sanctions over its actions in Ukraine. Its currency fell more than 60 percent against the dollar last year.

Japan, which tipped into recession in the third quarter, will continue to struggle with 1 percent growth, according to most forecasts. China, once a growth engine, now is considered a worry, as its economy slows to 7 percent or below amid questions about the health of its property markets and financial system. Moody’s said China’s growth is likely to be the slowest since 1990.

The picture is mixed for Central and South America. Citigroup is forecasting 4 percent growth for Mexico but much weaker performances — less than 2 percent — for the region’s other big economies: Brazil, Argentina and Venezuela.

CHEAP OIL

A stronger U.S. recovery already was on track when oil prices began their severe decline half a year ago to levels not seen since the Great Recession.

Analysts, in general, summed up their forecasts with a warning that even with a world-beating U.S economy, investors should enter 2015 with tempered expectations.

The bull market will probably continue, said Candace Browning, Merrill Lynch’s head of global research, but “the sentiment is far from euphoric.”

This article appeared in print in the January 7th, 2015 edition of Hamodia.