What Does The Future Hold?

The good news is most analysts expect economic growth in the United States to continue. The Wall Street Journal, The Economist, The Federal Reserve, and the International Monetary Fund all have forecast gross domestic product growth in the United States at 2.5 to 3.0 percent for 2015. That’s not quite as good as the 7 percent growth forecast for China or the 6.5 percent growth estimated for India, but it’s decent for a developed nation with a mature economy. In the UK, The British Chamber of Commerce (BBC) is forecasting a moderate slowdown in growth from 2015 at 2.8%.

There are factors that could hurt the economic outlook in the United States. Economists participating in The Wall Street Journal’s Economic Forecasting Survey said a negative global event was the biggest threat to U.S. economic growth followed by slower global growth. Three of the risks The Economist believes could keep companies from operating at target profitability during 2015 include:

  • Deflation in the Eurozone: “A Japanese-style stagnation in the euro zone would have profoundly negative implications for global demand, especially at a time when growth in the emerging markets is also softening.”
  • Spillover from Syria’s Civil War: “…The prospect of [ISIS] diverting its energies from Iraq and into Syria and its neighbours (such as Lebanon and Jordan) could prompt an uptick in oil’s political risk premium once more.”
  • Escalation of the RussiaUkraine conflict: “…The recently imposed trade restrictions have not only plunged Russia into recession, but also contributed to sinking industrial output in Germany… further sanctions could see Russia cutting off natural gas sales to Ukraine or the European Union (as is currently already reportedly occurring with supplies to Poland)… [these acts] would no doubt have a deleterious impact on the [Euro] region’s economic recovery.”

There are also factors that could improve the outlook. The Wall Street Journal’s survey found economists believe tightening labour markets, higher wages, better consumer spending, and low energy prices could support U.S. economic growth during 2015.

In the UK, with expected growth of 3.2% in 2014 that would have been the first year since 2007 that growth will have exceeded 3%. This is largely due to stronger employment figures. This reflects a deceleration in household consumption and falling public spending as a share of GDP.

The UK must do everything possible to ensure the strong growth in 2014 is not a flash in the pan. The expected slowdown should be a warning sign for the UK, which is currently too reliant on consumer spending as a growth driver.

 
 
 

Lexington Wealth Management