Thinking About Economic Growth in 2014 and 2015

It has been an interesting year for economic growth. Overall, the world economy grew by about 3.5 percent on a real, price differential adjusted, basis.  The growth of 3.5 percent was relatively decent, although, of course, it was not even.

Perhaps surprisingly, the 2014 GDP growth figures show a widely uneven experience in the amount of contribution to global growth in the year we just finished.

China

The king of economic growth in 2014 was businesses and consumers in China.  Economic growth in China accounted for more than one-third of all growth worldwide, at about 34 percent.

Interestingly, the 34 percent take occurred even though the Chinese economy slowed by a couple of percentage points from 2013 to 2014.  Economists put the China GDP growth rate for 2014 somewhere in the low 7 percent range, which is still enormous by western standards, but nowhere near the 9 or 10 percent growth experienced a few years back.

Europe

Next, take a look at European economic growth. Perhaps surprisingly, growth in the old world was worse than lackluster, accounting for a measly 5.5 percent of global output growth in 2014. The disappointment in Europe, of course, stems largely from incredibly weak smaller economies as well as some of the globe’s largest.

The weakest links of the European economies include Italy (in a recession), France (barely positive growth), and many of the so-called peripheries. Some of the stronger members include the workhorse of the European Union – Germany — as well the Netherlands and parts of Poland.

Overall, European economies are estimated to have experienced 0.8 percent growth in 2014.

United States

Business conditions were on the upside in the United States, with growth likely somewhere around 2.5 percent to 3.0 percent for 2014 as a whole. Although the entire European Union is about the size of the American economy, economic growth in the United States accounts for around one-fourth of all output growth in 2014, an amazing number for an economy with a still quite weak housing and labor market. (This probably speaks more the weak prospects of much of the world than to the strength of the U.S. economy.)

Russia

In prior years, growth in Russia has accounted for a strong portion of global economic growth. That was not the case in 2014, with Russian businesses and consumers estimated to have accounted for less than 1 percent of global growth.

The outlook for 2015 is not bright for the Russian economy either, anticipated to decline by around 2 percent.

A Broad Look at 2014

Overall, amazingly, about three-fourths of all economic growth in the world is estimated to have occurred in just five countries, with almost 60 percent estimated to have occurred in China and the United States alone.

gdp.fwLooking Forward to 2015

The 2014 background leads us to ponder the question: how will 2015 turn out?

For the global economy to achieve the same growth rate in 2015 as it did in 2014, we’ll likely have to see a little bit better than 0.8 percent growth out of EU members, as well as growth out of Japan, Brazil, and some of the other bigger players in the globe who are currently in a contraction. Should these conditions materialize, the global economy should be able to shrug off a cooling China economy and a potential recession out of Russia.

What would happen if China re-heated and Russia grew at 4 percent (and the previous conditions held)? We would probably see growth of at least 8 percent, and more than likely 9 or 10 percent.

Perhaps it’s time to get rid of the sanctions on Russia?  (At least if we want greater global growth)

Conclusion

Overall, the investment world saw a somewhat surprising end to 2014, at least when it comes to economic growth as measured by GDP.  The 2015 outlook is, of course, less certain, although indications are that growth might slow somewhat this year.

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