The dominant themes this year included quantitative easing from the European Central Bank (ECB), Greece’s ongoing economic crisis, the Chinese slowdown, elections around the world, and constant speculation around rate rises from both the US Federal Reserve and the Bank of England.
“There have been a few roadblocks in 2015,” Sean Maloney, economist and market strategist at London-based Finconomics, said. “The Greek bailout plan slippage, subsequent fractious renegotiations, the correction in China and the anticipation of the pending rate hike by the Fed have all caused bouts of volatility.”
Mr Maloney explained that the geopolitical climate worsened in 2015 with the European migrant crisis and the situation in the Middle East getting more complicated with the involvement of Russia.
Meanwhile, in the UK, the Conservatives came to power with David Cameron remaining as prime minister, an EU referendum was put on the agenda and pension freedoms for retirees came into effect. The UK economy remained in a good state with recent figures from the OECD that point to growth at a robust pace for the next two years. However, the CBI recently downgraded the UK’s growth figures due to weak investment prospects, pointing to instability in China as a risk. Chart 1 shows a forecast of the UK GDP from 2014 to 2018 according to various institutions.
“Recent growth has been robust after what was initially one of the slowest recoveries on record” said Joe Grice, chief economist at the Office for National Statistics (ONS), adding “real earnings growth should underpin continuing strength in domestic demand. But the balance of payments on the current account deficit – now widened to record levels as a percentage of GDP – is an area that will need watching.”
Elsewhere in the world, emerging market economies faced headwinds due to commodity markets and the speculation of a Fed rate hike, according to economists. The markets are being hit with commodity exposure to China on one hand, and financial sector exposure to the US dollar rates cycle on the other hand.