Global Economic Outlook Shows Mixed Picture

A rebound in US economic growth bodes well, but slower growth in China and Europe temper the global macroeconomic outlook. So what should the pharmaceutical industry expect on the macroeconomic front in 2015? A recent analysis by PwC offers five key projections

Table I outlines the five top projections by PwC economists for the performance of the global economy. Of particular note is a projection for improved US economic growth, which is expected to be the fastest in a decade. US unemployment has fallen during 2014 to below 6%, and PwC economists expect this, combined with lower oil prices, to contribute to rising household consumption. In the firm’s main scenario, it is projecting the US economy to grow by more than 3% in 2015, the fastest growth rate since 2005. In line with this growth, the US is expected to contribute around 3% of global gross domestic product (GDP) growth in 2015, its largest contribution in a single year since before the financial crisis.

Table I: Five Top Projections for Global Economic Performance
1. US economic growth expected to be the fastest in a decade
2. Economic growth in China projected to be the slowest since 1990
3. Low inflation leads to quantitative easing in the Eurozone
4. India expected to resume growing at above 6%
5. Economic growth in Sub-Saharan Africa to outpace global growth
Source: PwC


Although PwC expects China to make the biggest contribution to global growth in 2015, its projected growth rate of 7.2% would be its slowest since 1990 and its high debt levels pose some downside risks to that projections. PwC, however, points out that two other BRIC countries, notably Russia and Brazil, face more serious conditions. PwC projects that GDP in Russia will decline in 2015 due to low oil prices and economic sanctions, and that growth is expected to be sluggish in Brazil, where the firm’s projection for the economy is GDP growth of only about 1%. Taken together, the firms expect the BRICs’ contribution to global growth to fall for the second year in a row to around 33% in 2015.  

In the Eurozone, PwC projects that both inflation and growth to remain very low in 2015. As a result, the firm expects the European  Central Bank to undertake a quantitative easing program involving the purchase of government bonds in an attempt to boost demand and head off deflation. After growing at below 6% since 2012, PwC considers that 2015 could be the year that India turns the corner, posting growth of around 7%. In the short-term, low oil prices are likely to increase GDP growth, ease the pressures of India’s high current account deficit, and help bring down inflation, according to a recent PwC press release summarizing the projections. In the medium-term, the firm suggests that the February 2015 budget could see India take a step toward implementing new structural reforms that will further boost the economy.

A final projection by PwC is that economic growth in Sub-Saharan Africa (SSA) will outpace global growth for 15th year in a row. The firm also expects the combined GDP of SSA’s four largest economies (in purchasing power parity terms), namely Nigeria, South Africa, Angola, and Ethiopia, to overtake the economic output of Italy in 2015 when measured in constant 2013 international dollars. “For businesses, this is a further sign of the potential of SSA as a region in which to invest,” concludes the PwC analysis.

PwC has identified three factors for businesses to look out for in 2015: falling oil prices in recent months due to slowing global demand, the US shale oil boom, and steady production from OPEC. PwC Senior Economist Richard Boxshall said in a recent PwC analysis: “Our predictions and projections assume that oil prices will average between $60-70 over the course of 2015 and finish the year at around $80. However, due to the highly unpredictable nature of oil prices, businesses should plan for different scenarios.” With regard to China, Boxshall said: “The Chinese economy clearly has vulnerabilities given its high total debt level, around 250% of GDP, and estimates by Chinese academic researchers that around $6.8 trillion of the investments made since 2009 may have been wasted on creating ghost towns, unused office blocks, and mothballed factories. So far the Chinese government appears to have this under control, but the downside risks of a hard landing should not be ignored.” And the last important factor is escalation of geopolitical risks. “An escalation of the geopolitical tensions in Russia and Ukraine and in the Middle East could have a negative influence on business confidence, with consequent implications for global growth,” said Boxshall in the PwC analysis.

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