As oil prices drop, world looks to China, India and America to lead growth
Guru Ramakrishnan says as many economies struggle with cyclical fluctuations, China, India and America are poised to make the best use of low oil prices to lead global growth this year
This will be the year of the CIA. Not the Central Intelligence Agency in Langley, but the combined economies of China, India and America. In a world starved of economic growth, these three countries will lead the way as the rest of the world goes through an important phase of business-cycle-related adjustments.
Until recently, it has been the BRIC countries (Brazil, Russia, India and China) that have been the engine for growth. However, Brazil and Russia have struggled alarmingly and have been marginalised on account of internal policy debacles.
Both countries are in the unusual predicament of having high interest rates and inflation with no economic growth, despite operating close to full employment. They have both been adversely affected by the recent decline in commodity prices and a meaningful depreciation of their currencies. Russia has been further decimated on account of the US/Europe-led sanctions following its annexation of Crimea.
Expecting Europe or Japan to help contribute to growth in 2015 is simply not realistic. The EU region is rapidly deflating and needs significant stimulus from the European Central Bank to get the union growing again. Japan is in recession and the combination of Bank of Japan stimulus and Shinzo Abe's reforms will take some time before its impact is truly felt.
This leaves the CIA countries to carry the global growth torch forward.
On a purchasing-power-parity basis, the CIA bloc today accounts for 40 per cent of global output. The growth rate in gross domestic product tells an even more powerful story. This year, this troika is expected to deliver 65 per cent of the increase in PPP-adjusted global GDP. This is a stunning statistic by all counts.