Can US Consumers Boost the Global Economy?

With so many of the world’s leading economies struggling to generate meaningful growth, it is falling to the United States economy to once again emerge as the key driver of economic growth in 2015.  However, while the US economy is growing much faster than most other large developed economies, it is still emerging from a prolonged slump and many factors could slow growth in the US in the coming months.  Nevertheless, no other economy in the world is in a better position to be a pillar of global economic growth and to provide an opportunity for other economies to boost their own growth in the year ahead.

With the exception of the “polar vortex” induced slump in early 2014, last year proved to be a slightly better year for the United States economy than most of the years in the wake of deep recession in 2008 and 2009.  In the fourth quarter of 2014, US GDP growth slowed to 2.6% quarter-on-quarter (2.5% year-on-year), following 4.6% and 5.0% growth rates in the two previous quarters.  As a result, the US economy expanded by 2.4% for the year in 2014, a level that was in line with our post-Q1 2014 forecasts.  Meanwhile, a number of positive factors emerged in late 2014 that suggest that the US economy is in position for a run of solid growth in 2015 and the years thereafter.

The most encouraging sign for the US economy, and for exporters around the world, is that consumer demand in the United States is on the rise and is forecast to continue to grow over the course of this year.  With the unemployment rate in the US having fallen to just 5.6%, and with the sharp fall in oil prices providing a major bonus for US consumers, consumer demand in the US will rise at a very strong rate in 2015 after a prolonged slump in the wake of the financial crisis in 2008.  This is encouraging, not only for the economic prospects of the United States, but for many of the world’s leading export economies, particularly those in North America, East Asia and in parts of Europe.

The outlook for many of the world’s other leading economies in 2015 makes it imperative that the US economy meet expectations this year.  For example, Chinese economic growth rates are forecast to continue to trend downwards in 2015, with GDP growth rates forecast to fall to below 7% by the end of the year.  Meanwhile, many of the world’s other leading emerging markets (Brazil, Russia, etc.) are mired in deep slumps that are forecast to persist for at least another year.  In the developed world, the Eurozone’s combination of stagnation and deflation means that its long slump will continue in 2015 and likely much longer, while Japan’s recovery has proven to be short-lived and stagnation and deflation could return to that country as well.  As a result, the US consumer has returned as the key driver of global economic growth for the first time in more than 15 years, and this time, there are few other prospects to contribute to global growth.