January 8, 2015 - State of the Markets
Almost six years after the Great Recession reached its formal conclusion in the United States, the global recovery and return to expansion remains uneven. The immediate challenges facing the world’s leading economies have come into focus in the new year. On the Continent, the European Central Bank is preparing an aggressive and long-awaited response to a worsening threat of deflation. Albeit for very different reasons, both Japan and Russia have slipped into recession. In parts of Africa and the Middle East, sharply lower energy prices are forcing major oil exporters to rethink near-term growth assumptions.
Concerns about the durability of the worldwide outlook have reinforced the perception of the United States as a relative safe haven for global capital. Indeed, the outlook for the domestic economy contrasts the reserved assessment abroad. The pace of American growth firmed in the latter half of 2014; US equity markets and corporate profits ended the year in range of record highs; and, in large metropolitan areas across the nation, core properties are trading above their pre-crisis peaks with increasing regularity.
In the face of unevenness, the yield on the ten-year Treasury note briefly fell below 2 percent in early 2015, within range of its lowest levels in history. The American economy is not immune to global trends, however. In the minutes of its December 2014 meeting, the Federal Open Market Committee (FOMC) noted with its characteristic restraint, “many participants regarded the international situation as an important source of downside risks to domestic activity and employment.”
While trends have diverged, it is important to note that underlying drivers of long-term growth prevail over short-term swings by definition. Costs may also be offset by gains. In the case of falling oil prices, costs are concentrated amongst exporting countries. The benefits, however, are widespread. International Monetary Fund (IMF) Chief Economist Olivier Blanchard expects that lower oil prices will lift global GDP between 0.3 and 0.7 percent over the coming year.
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