International outlook for 2015.

• Author: Mafi-Kreft, Elham
• Position: Analysis of global economy

The latest release from the International Monetary Fund (IMF) forecasts that the size of the global economy will have increased by 3.3 percent by the end of 2014. For 2015, our Kelley School of Business panel is anticipating that the world will experience a slight rebound to 3.8 percent growth in global gross domestic product (GDP).

The global economy will show some strengths and weaknesses in 2015. It is reasonable to state that the eurozone is responsible for the disappointing outcome of global growth in 2014. Europe's growth was exceptionally weak at only 0.8 percent. The United States, on the other hand, was the engine of global growth, with very encouraging results in 2014.

United States

U.S. growth is bouncing back but seems to be stuck below its potential.

After a setback in the first quarter of 2014 (a 2.9 percent drop in GDP), the U.S. economy bounced back. This was primarily due to the strengthening real estate market, greater household consumption and increased business spending. Furthermore, the recent pickup of wages, as the labor market tightens, suggests a more sustainable economic recovery for 2015, which we forecast to be slightly above 3 percent.

One possible threat to the U.S.'s stronger recovery is the end of the Federal Reserve's quantitative easing (QE3) and the financial market's reaction. The reaction of market participants right after the announcement didn't spark volatility in the stock market indexes, but then they had correctly anticipated the end of the Fed's massive purchase of Treasuries and asset-backed securities.

Additional threats to the U.S. economy in 2015? The aging population and the deceleration of labor productivity. The expansion of information technology that fueled rapid productivity during the 1990s continued in the first part of the millennium. However, more recent restrictions on occupational labor supply, wrongful discharge and anti-discrimination laws, and the preferential tax treatment of employer-provided health insurance have reduced labor market fluidity and, therefore, may be a factor in slowed labor productivity.

Europe

Europe's recovery continues to be sluggish and the region is edging toward recession.

Growth continues to be weak in the eurozone and its GDP is rather optimistically forecasted to grow at 1.3 percent in 2015. The pace of economic recovery varies across countries, however. In particular, Germany, France and Italy have struggled to rebound from the eurozone's slump, while the Spanish and British economies have enjoyed modest but steady growth. Many countries in Europe suffer from productivity and competitiveness loss (the competitiveness of a country is measured...