Global Economic Outlook 2015 – The Thin Red Line

I want to start with a beautiful quote by 40th U.S. President “Ronald Reagan” (1981-1989) –

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

This is a very simple approach towards an economy. At the current juncture the Global Economy is gradually moving and IMF (International Monetary Fund) came up with projections in its January 2015 Report. It created a cheer because the World Output was stagnant in 2013-14 but then the projections of IMF for 2015 and 2016 showed a sign of growth.

Table of World Economic Outlook Projections by IMF

GDP Growth % Change Year Over Year
2013 2014 2015 2016
World Output 3.3 3.3 3.5 3.7
Advanced Economies
United States 2.2 2.4 3.6 3.3
Germany 0.2 1.5 1.3 1.5
France 0.3 0.4 0.9 1.3
United Kingdom 1.7 2.6 2.7 2.4
Japan 1.6 0.1 0.6 0.8
Emerging Economies
China 7.8 7.4 6.8 6.3
India 5 5.8 6.3 6.5
Brazil 2.5 0.1 0.3 1.5
Russia 1.3 0.6 -3 -1
Saudi Arabia 2.7 3.6 2.8 2.7


From the given projections IMF is expecting the world output will grow by 3.5% to 3.7% till 2016 but as such no big improvement overall. I feel the drastic decline in oil prices is a major reason to have an uptick in growth projection. But here is a catch that Oil Prices alone could not lead the growth but other major factors should also to be considered whether this year world economy will grow or not. That is why I put the phrase “The Thin Red Line”. I don’t see further major up moves in global indices and world growthat least this year.

First we will study the fall of Oil Prices, then commodities, currencies exchange and overall impact then we will see the US, Euro Zone and other Emerging Economies separately.

Oil Disaster

Crude oil had drawn the world’s attention and the shocking decline made everyone stunned. But we should analyse this fall very carefully.

Crude had violent history of corrections. From a record low of almost $2 in May 1970 till reaching all time high of $147(approx.) in July of 2008 crude has witnessed many sharp up and down moves. Prices had collapsed many times to an extent of 65% – 75%.

Here are some of the important levels of Crude:

  • December 1998 – Price $11
  • January 2000 – Price $24
  • July 2008 – Price $147 (Top)
  • December 2008 – Price $35
  • June 2014 – Price $115
  • March 2015 – Price $44

In this way we can see the violent fall from $147 to $35, almost 75% crash and now the recent collapse is also almost 61%. But a question comes to mind why the recent crash happened when everything was going good. Let us find out.

After finding a bottom around $35 oil started its journey in 2008, oil demand was soaring high in many countries especially in China and the bad conflict in Middle East countries made the oil bounced till the level of $120-125.

But after June 2014 the things were started changing, Libyan rebels opened two key export terminals – Es Sider & Ras Lanuf, that had been shut down for a year. Libyan exports rose unexpected and the even oil demand in Asia and Europe began weakening significantly mainly due to slowdown in China & Germany. When the oil was around $120 the Global Crude production was about 75 million barrels per day and even U.S. also added 4 million new barrels of crude oil per day. This whole big production hit the global market and even special reserves were out, this made the oil straight slipped up to $85.

This much I expected but an actual havoc happened in November meeting of OPEC (Organization of Petroleum Exporting Countries). I expected that OPEC will take some decision about the fall but The Secretary General ofOPEC Mr. Abdallah Salem El-Badri took a stellar move in the November meeting which stunned the whole world. They decided to let the prices fall, on the contrary Venezuela and Iran wanted to cut back in production in order to prop up the price. But Saudi Arabia and the whole cartel strictly opposed of cutting production and willing to let prices keep dropping. Due to this oil wreath a havoc and dropped crazily till $44.

Here there is a mystery about OPEC and cartel behind the decision to let the price free fall.  OPEC Sheikhs and U.S. very articulately target Iran, Venezuela & Russia. All came up together for their own vested interests in keeping the price low so the U.S. could tackle Russia and Iran. Russia already keeping hold on Ukraine’s natural resources specially Uranium which is very essential for Nuclear Power. This is very ugly global politics but the decline in prices is hurting U.S. and Saudi Arabia also but both are ready to bear the loss.

Impact of Decline in Crude Prices on Countries:

Russia – The country is hugely dependant on oil and gas production with oil revenues making up almost 45% of the govt. budget and the sharp fall in prices ruined all the revenues of country. The exports fall and ultimately the Russian currency Ruble collapsed. Economists estimated that this catastrophe will shrink the Russia’s GDP by at least 4.5% in 2015. This created a panic inside Russia because it resulted rise in inflation and imports become drastically expensive. Then Russia’s Central Bankstruggled to deal with this crisis and on 15th December 2015 suddenly hiked interest rates from 10.5% to 17% in order to stop people from selling off Rubles. Recently in March 2015, Boris Nemtsov a political rival of Putin shot dead. The Putin Govt. is somehow gaining confidence of public of Russia.

Iran – Iran’s economy had recently started to rebound after years of recession. The IMF had been projecting that the country was on track to grow 2% but this was all before the oil collapse, now the situation is very grim and precarious.

Venezuela – A major oil producer and heavily dependent on oil export revenue but now the economy shrank and inflation is rampant.

Saudi Arabia – The country is the world’s second largest crude producer (after Russia) will suffer financially from cheap oil. If oil stays below $60 then govt. will run a deficit of 14% to GDP though the govt. is using their foreign exchange reserves to tackle the lower prices.

United States – The impact on big daddy is bit varied. On one hand fall in crude prices offered a boost because gasoline got cheaper almost $2.50, the lowest since 2009. But on the other hand, a bad news for oil producing states like Texas and North Dakota because it caused a big drop in revenues. Moreover due to high prices there was a focus on drilling in Alberta oil sands in North Dakota for Shale Gas. There was a huge investment occurred in drilling and now almost no demand so it became a tough situation for U.S. also if the prices remained low.

I expect – Oil will rebound because staying at these lower levels would not be beneficial for OPEC otherwise there would be serious situation for Oil Exporting Countries.

In this way Oil collapse had a huge impact on oil exporting countries but a boon for all emerging economies. I went little deep to understand the reason and impact of oil collapse but it is necessary to explain all the things.

Commodities – Base Metals & Precious Metals

All the commodities including Base & Precious Metals are going through a rough phase.

Look at the Table –


Base Metals Price – $/lb.
(LME) 1999 2004 2009 2011 31st Mar 2015
Aluminium 0.5 0.7 0.6 1.3 0.81
Copper 0.7 1 1.3 4.5 2.77
Lead 0.3 0.4 0.4 1.3 0.82
Nickel 2 7 4 14 5.92
Tin 3 4 7 15 7.76
Zinc 0.4 0.5 0.6 1.2 0.94


Please note that all the prices of base metals are per Pound, we usually see the prices per metric tonne. It is evident from the above table that all the base metals are trading at multi year lows. On LME some of the metals are in deficit and some have surplus inventories. On a macro basis, the upward trend in U.S. dollar and lower Chinese and European growth put a lot of pressure on prices.

I expect – The base metal prices will follow the dollar closely in the second half of 2015. In the article further I am going to explain the trend of dollar in the coming months. I am sure base metals will find their bottom this year and ready to explode for next bull run.

Precious Metals

Precious Metals Price – $/ozt
  2000 2005 2010 2011 1st April 2015
Gold 300 400 1200 1900 1193.01
Silver 5 7 20 45 16.71
Platinum 600 1100 1600 1900 1148.5
Palladium 1000 400 700 800 743.5


The story is same for precious metals also. After reaching their highs in 2011 they collapsed like anything. (Note: Please refer to my article dated 6th Dec 2011 “Paradigm Shift” where I predicted the crash in gold prices).

I expect – I am not confident about the rise in Gold Price because most of the developed economies are backed by gold and still I see some shift from Gold to Paper currency, this is why there can be more fall in gold may be up to $800/oz. but I can say this is the time to accumulate Silver, Platinum and Palladium in physical form. Gold dynamics is bit complicated so I feel to wait for some more time to buy Gold.


2015 has been proved excellent year for the U.S Dollar so far. Let us see some figures –

  Jan-08 Jan-11 Jan-14 1st April 2015
US Dollar Index 75.28 77.86 81.4 98.41
USD/INR 36.35 45.64 61.81 62.41
EUR/USD 1.46 1.44 1.36 1.07
GBP/USD 1.49 1.57 1.64 1.48
USD/JPY 108.1 81.08 104.03 120.04
USD/RUB 24.47 30.13 32.85 57.81


Can you all see the crazy up move in U.S. Dollar?  The ‘Dollar Index’ rallied over 25% between May 2014 and March 2015, an exceptional parabolic rally in almost four decades. But what is exactly happened with the U.S. Dollar, we have to see and analyse it.

The U.S. National Debt almost exceeds $18 Trillion and Fed Reserve maintaining the target rate close to zero, huge printing money since 2008 through the process of Quantitative Easing Methods but even despite this economic situation the world premier currency ‘Dollar’ remained strong. Fed Reserve along with U.S. Govt keep on projecting that U.S. economy is getting stronger and stronger, but it is a fallacy. Few points I would like to mention about rise in Dollar –

  • The difference is growth rates between the U.S. and the rest of the world. The whole Eurozone, Japan and China in stagnant mode on the contrary the recent GDP quarterly reading of U.S. overtake everyone.
  • The way the Oil collapsed it was a good engineered move to destroy oil and raise the value of Dollar. Some of the things are beyond economic calculations which are driven by political motives.
  • The financial condition of U.S. govt is precarious and since many years Fed is trying to keep the interest rates in control but how long they can control, they have to increase then before the increase they need the value of dollar to be very strong.

This all clearly hints that the rise in Dollar is quiet artificial. Due to the rise in Dollar the Euro collapsed and the biggest hit was Ruble which was particularly targeted.

I expect – The extreme craziness will end and dollar will crash down but the only question is ‘When’. I feel may be this year or before Presidential Elections in U.S. which is due next year. Due to dollar all the commodities suffered badly but they will start shining and the dominance of dollar will end. The Euro may weaken further may be under $1. Since 2011 I am warning about U.S. Treasury Bonds and I am still saying that Bond Prices may anytime collapse 20% overnight.

World Economies

Table of World Indices

Indices 27th March 2015 Closing Low (2008) 31st Dec 2011 Highest Level Upside from 2011 Closing (%)
Dow Jones 17712.66 6469.95 12217.56 18288.63 49.69
S & P 500 2061.02 666.79 1257.60 2119.59 68.54
FTSE 100 6855.02 3460.70 5572.28 7065.08 26.79
Nikkei 225 19285.63 6994.90 8455.35 19778.60 133.92
Hang Seng 24486.20 10686.30 18434.39 25362.98 37.59
Shanghai Comp 3691.95 1664.92 2199.42 3715.68 68.94
BSE Sensex 27458.64 7697.39 15454.92 30024.74 94.27
S&P Nifty 8341.40 2252.75 4624.30 9119.20 97.20


U.S. Economy – Indices are the barometer of economies. Just look at the stellar rise in S&P Index and Dow Jones, S&P Index almost tripled in 6 years. All the QEs and monetization sparked the huge rally in indices but on the contrary it didn’t help in improving the real economic condition of U.S. economy. Though World Bank & IMF projecting some growth but the real Unemployment Rate is still high. All the QE money flowed into equity stocks, bonds and Dollar which eventually formed the bubbles.

Eurozone – The Euro against Dollar is struggling hard which itself saying the bad economic conditions in Europe. Greece is somehow surviving but how long? It would be very tough to feed all the small nations of Europe who are facing acute economic crisis. Now the main man Mr. Draghi of ECB also trying QE injections but that would not be enough to save the bad economic nations.

Asian Economies – China is in a sleeping mode but this giant can wake up anytime soon. Japan’s Mr. Shinzo Abe again gathered confidence of people and applying all sorts of methods to tackle with economic crisis. The ‘Third Arrow’ is working and they launched QE too. But on the other hand Russia is struggling very badly due to collapse of Oil Prices but Mr. Putin will find his way out by his political intelligence and tactics.

India – India is in a roaring position among BRICS (Brazil, Russia, India, China& South Africa). Just look at the table, a massive rise made by Sensex & Nifty almost doubled in 4 years. Actually India became a sweet spot in Asia since China and other nations not doing well so all the foreign flowgot diverted to India. Till now in 2015 FIIs have almost invested 18-20K crores in Indian Equities. Moreover the biggest plus point was the change of corrupt govt. In April 2014, India witnessed a thumping victory of BJP (Political Party). That was clearly a unanimous mandate of Indian Public for any party in 4 decades.

If we see the present condition of SENSEX then PE quoting almost 21 times which roughly says that for FY15 Sensex EPS is around 1400. This is quite high and the corporate earnings picture is not that great. Now this month 3QFY15 results will be out but still the outlook for earnings is not encouraging. So the PE multiple is not at all justifying and downgrade in EPS will happen.

Good Points for Indian Economy – Thanks to Oil Crash

  • CAD reduced drastically (Current Account Deficit)
  • Fiscal Deficit reduced
  • Inflation reduced (both CPI-Consumer Price Inflation& WPI-Wholesale Price Inflation )
  • Cut in Interest Rates by Central Bank (RBI)
  • IIP bottoming out (Index of Industrial Production)

All the economic indicators making the India in a very strong position among peer nations. We saw a stellar rally in Indian Indices because a huge potential can be tapped and the new govt. started putting policies in place which will eventually give results in coming 3-5 years.

Policy Initiatives by new Govt. –

  • Diesel Deregulation
  • Easier FDI norms
  • Easy Environmental Approvals
  • Smart Cities Development
  • Smooth & Transparent Coal block allocations
  • FDI in Insurance, Railways & Defence
  • Focus on Infra Sector & Tourism Sector
  • Make in India

Special Initiatives –

  1. Jan Dhan Yojna
  2. Adopt a Village
  3. Swachh Bharat (Clean India)
  4. Skill India

All the initiatives definitely will give boost to Indian Economy and the manufacturing activity will also pick up which will improve the corporate earnings of India. In the longer run INDIA would be the hot spot for every global investor.

Near term outlook is not good so wait for an opportunity means a possible global turmoil could make the Indian Indices down this year. This is why I put the title ‘Thin Red Line’ means no more high returns this year.

Conclusion: I Expect –

  • A possible crash of Dollar and it would no longer be a reserve currency for world trade.
  • Dow Jones and S&P may correct 30% or more.
  • EURO currency will fall further and possible break up this year or in coming two years.
  • Gold may come down further up to $800/oz.
  • Accumulate Silver & Crude but rise would be gradual.
  • Base Metals may start rising at the end of this year.
  • Chinese Economy will come out of dark and currency Yuan will play a big role in the global economy.
  • Indian Indices may drop Nifty up to 6800-7200 and Sensex up to 18-20K but this would be a fantastic opportunity to enter because now India will enjoy the structural bull run which may take the Indian GDP up to double digit and Sensex up to 50k.


This is my overall global economic outlook for 2015. I didn’t put too much focus on number crunching and micro analysis of economy because there are certain other macro things like political interferences and geopolitical risks which can influence the global economy in a big way.

Disclaimer: In this article all the opinions and predictions are my personal and it has no relevance or connection with any of the report and views of any broking/equity research company.



You might also like