Why you should care
Because the economy runs in cycles, and you’re bound to be affected — whether it surges or slides.
While it’s been a hot year for stocks in the U.S., plummeting oil prices and economic pressures have hit other parts of the world — hard. Sure, the energy sector looks like a mess, but it could be lucrative for certain countries. And the same could be said about other tumultuous industries, including retail. Here’s a preview of what financial experts and analysts expect is in store for consumers and investors this year.
The Collapse of Oil?
Tumbling oil prices, which have fallen more than a third since the summer, are expected to drain hundreds of billions of dollars from the coffers of oil-rich exporters and oil companies. At the same time, the slowdown should inject a much-needed boost for the struggling economies of Europe and Japan because it might persuade the central banks in those countries to implement further monetary easing as prices remain slumped. Populous countries dependent on energy subsidies and agriculture like Brazil and India will also benefit from the plunge, says research firm Strategy Dynamics Global, because cheaper oil means lower market prices for diesel and agricultural transport.
In the U.S., which had seen a boom in economic activity related to fracking, energy exports will likely suffer as the price of imported oil continues to fall. Indeed, the 40 percent drop in oil price — the worst streak since the financial collapse of 2008 — could reshape everything from talks over Iran’s nuclear program to the financial situation in Russia, which can’t rely on the same level of oil revenues it once did to rescue an economy suffering from sanctions.
Retail Wars: Round 2
Alibaba, anyone? The Chinese e-commerce giant, which claimed the record for the world’s biggest initial public offering in September, has become public enemy No. 1 for U.S. retailers and started a movement that could see a battle well into 2015. Rivals including JC Penney, Target, Best Buy and Home Depot claim Alibaba will “decimate” local retailers unless a new law can be passed to prevent online shoppers avoiding sales tax, and the companies are urging Congress to close tax loopholes. Even Amazon, which has traditionally been the target for such campaigns, has jumped on the bandwagon. That’s no surprise considering a single day of Alibaba’s sales — worth $9.34 billion — blew Amazon’s $166 million record out of the water.
Interest Rates Hikes
The year ahead will be the one for cutthroat economic policymaking — and interest rates may be front and center. The U.S. Fed, which has kept interest rates at virtually zero since the financial crisis, could hike rates this year as unemployment levels fall and the economy strengthens. All of this has wrangled the nerves of bankers and investors, especially because economists believe the market is underestimating how aggressively the central bank will tighten policy.
Meanwhile, China recently cut its interest rates unexpectedly in an effort to ramp up growth in the world’s second largest economy. It should ease the financial burden on borrowers and boost business sentiment. And, if that weren’t enough, there could be at least one more rate cut to come this year, analysts say, to shore up flagging growth. Over in Europe, the central bank has taken aggressive steps cutting interest rates to the bone with the hope that it (among a series of other moves) might fix the continent’s economic woes. Time, of course, will tell.
We saved the good news for last. The U.S. stock market is expected to come out on top this year, averaging a return of 8 to 10 percent. (Some economists say the bullish trend will continue beyond 2015.) If U.S. stocks don’t float your boat, so-called value investors may find bargains abroad with foreign stocks. But HSBC warns growing credit risks and market volatility for countries with “weaker financial dynamics” — we’re looking at you Russia, Turkey, Brazil and South Africa — means economic risks are high in some of these countries, especially those where political tensions are high.
Asia, however, could be the biggest comeback story this year, at least according to Goldman Sachs. Putting Japan aside, markets in Asia are expected to return 11 percent, while Japan’s main market — known as TOPIX — is still set to return 8 percent, compared with 5 percent for both the S&P 500 and the Europe Stoxx 600. Not bad for a nation that recently slipped into a recession.