The 4 biggest threats to economic recovery in 2015

Premature Greek elections have brought the economic doomsayers out in force this week. But what's most likely to ruin your 2015?

by Adam Gale
Last Updated: 15 Jan 2015

If all your money's safely tucked away in gold bullion and the festive period's getting too nauseatingly optimistic for you anyway, there's good news. Otherwise, not so much. In the last few days, the fragile economic recovery has come under threat from (surprise surprise) Greek politicians, while Cassandras at HSBC and the British Chambers of Commerce (BCC) thought they'd improve confidence by telling everyone exactly how far up the creek they are.

In the same spirit, MT's broken down the four biggest threats to the economy right now, for you to enjoy over your mince pies.

Greek elections, Russia and the Eurozone

Two days ago, finance ministers representing the 'Troika', or gang, of European countries that have been bailing out Greece for four years decided to extend its loan scheme for another two months. It had been due to expire at the end of December.

The extension of the bail out has been highly divisive in Greece, where the opposition is calling for debt forgiveness or a Euro exit and where the pro-austerity government's grip on power is featherlight. Prime Minister Antonis Samaras' ingenious response was to bring forward the election of the President by MPs by two months - to next week.

For some reason, markets were spooked by the prospect of a surprise election where no candidate had been declared and where the future of the country's membership of the currency union were at stake. The Athens stock exchange fell 11.2% as a result.  

Greek stocks aren't exactly weighing holes in institutional investors pockets these days, but a Greek exit or even the uncertainty surrounding it could be the straw that broke the Eurozone camel's back.

Greece isn't the only danger to Europe's flatlining economy. In a delightfully cheery report detailing 2015's ten biggest threats, HSBC pointed out that Germany's recovery has depended on strong export markets on Europe's periphery, notably Russia. But with sanctions, depressed oil prices and a tumbling rouble, demand out East isn't looking too strong.

Given that the Eurozone is barely keeping its head above the water - growth was 0.2% in the third quarter - odds of a return to recession are reasonably high, but the good news (sort of) is that the prospect is more of a deeper malaise than a full on crash.  

Hard landing in China

If the global economy since 2008 has been a cliched airplane disaster movie, then China has been that one engine that miraculously hasn't failed. The world's second largest economy has continued to expand at rates that western finance ministers could only salivate over, and this has kept the global economy in the air.

Recently, however, China has started to slow down. As China is still primarily an exporter rather than an importer, this isn't necessarily disastrous for the UK unless you're in the commodity or tourism trades. The real danger is a so-called hard landing. If China crashes, then the shock to the struggling West could be dire.    

The likelihood of a hard landing appears to be fairly low, however. Yes, China revealed its export growth fell to 4.7% in November, but it's still 4.7% up year on year. Until exports start to contract rapidly, it would be premature to predict a 1930s style excess capacity nose dive.


If you missed the economics 101 lecture on deflation, it's bad. The prices of goods goes down, which means the value of money goes up, which means everyone hoards and no one spends. At the same time, no one invests, because the real value of debt increases organically over time. It's haunted Japan for years, and now its 'spectre' is looming over Europe.

The recent oil and commodity price slump (and, in the UK, the supermarket price wars) have created serious deflationary pressures, although cheap oil isn't likely to persist in the long run. The only realistic way to steer clear of it, however, is consumer driven economic growth, which thus far seems elusive.  

Monetary mismanagement

The headline threat identified by the BCC today was of an untimely rate rise from the Bank of England. Its chief economist David Kern said keeping interest rates at their historically low levels was necessary to 'minimise the risk of the recovery stalling'.

HSBC, meanwhile, focused on the threat of the Fed raising US interest rates early, and of the European Central Bank failing to go for 'full-blown' quantitative easing.

It's true that a rash decision by central banks could stunt the recovery, but they haven't exactly been reckless over the last few years (the Bank of England has kept interest rates at 0.5% for five years and counting). Disaster is unlikely to come from policy, unless of course you count Abenomics in Japan. HSBC counts this as another of its threats, as the massive fiscal stimulus involved creates the potential for hyperinflation once (and if) it actually lifts Japan out of deflation. 

All together, though, it's probably a bit early to start stocking up on cans of baked beans to ride out the coming disaster. Even the otherwise gloomy BCC made UK growth predictions of 3% for 2014 and 2.6% for 2015, which, while lower than previously expected, are still better than any time since 2007. So cheer up - it might never happen.

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