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Monday, January 19, 2015

US economy stars at Davos meeting

Davos - Usually emerging economies star at the annual World Economic Forum in Davos Switzerland. This year talk is about the superior performance of the U.S. economy compared to that of most other developed countries. + Add Image Russia is entering a recession due to sanctions but mostly because of the decline in oil prices that in turn has caused the value of the ruble to drop. India is struggling with economic reforms. Even China is growing more slowly. The U.S. on the other hand, in the fourth quarter of 2014 grew at an annual rate of 5 percent. Jacob Frenkel of JP Morgan Chase and Co said : “The U.S. is now regaining its position in the world economy. It is the place where the recovery took hold in the most robust way.”

The Davos meeting runs from January 21-24. The US will have a high profile at the meeting as Secretary of State John Kerry will attend. Kerry is the highest level official the Obama administration has ever sent to Davos. Often at the meetings there will be talk of pending and possible takeovers. This year many investors are looking to invest in the U.S. Merck CEO Karl-Ludwig Kley said: “If you want to participate in innovation, you have to be in the U.S. No country on earth is investing as much in innovation.” This interest in the US extends to many countries. Last May Japanese distiller Suntory paid out $16 billion for US distiller Jim Bean. Even Canada got in on the act with Encana paying $5.9 billion for Athlon Energy in Texas. Also, Qatar's sovereign-wealth fund joined other investors to buy half of American Express's business travel unit.

Some analysts warn that the performance of the U.S. should be put in perspective. China overtook the US in 2014 as the world's largest economy. While the US economy is predicted to expand by 3.2 percent this year, China is set to expand by 7.1 percent down from the 7.5 percent projected last June. Last June, the world economy was predicted in Global Economic Prospects to be 3.4 percent but is now set to be 3.0 percent. The US growth rate has been revised upward but China is still expanding at a much faster rate. The full Global Economic Prospects report for 2015 can be found here.

 The following paragraph summarizes much of the outlook for the world economy: "While activity in the United States and the United Kingdom has gathered momentum as labor markets heal and monetary policy remains extremely accommodative, the recovery has been sputtering in the Euro Area and Japan as legacies of the financial crisis linger, intertwined with structural bottlenecks. China, meanwhile, is undergoing a carefully managed slowdown. Disappointing growth in other developing countries in 2014 reflected weak external demand, but also domestic policy tightening, political uncertainties and supply-side constraints."

 Lower oil prices will impact negatively on countries such as Russia, Venezuela, Iran and to some extent Canada. but will help countries such as China and India who need to import a great deal of oil. The stronger US dollar may hurt US exports along with decreased demand as growth in many countries remains sluggish.

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