2015 hasn’t been a year as any. Oil, Yuan, Fed, Europe and France have known majors turning points. Some of them will generate structural evolutions which will affect the world economy at least for its next ten years.
Oil, first. 2015 has brought the confirmation that price fall observed at the end of 2014 was not only the result of geostrategic choices, Gulf States, with Sunnite predominance, willing to weaken Shiite Iran and the United States trying to cut Russian resources after Ukrainian crisis. OPEC decision to maintain the level of its production, confirmed a year later, was the consequence of an admission: there is a durable surplus of supply on demand. It is not the slowing of the Chinese economy which is responsible for it, but the abundance of the resource, as huge new discoveries in the U.S. and in Africa, during these last years, give evidence. The myth of the scarcity of fossil energies has collapsed. It was easy to forecast for coal and natural gas. It is now also obvious for oil. Geology and technology were stronger than ideology. And the lift of the ban for exports in the U.S. will reinforce this trend. The world will have to learn how to live with cheap fossil fuels, at least for the next ten years.
International monetary system has also experimented its turning point, these previous months, when the Chinese currency, the Yuan, went through decisive steps to acquire reserve currency status. The second world economy will have, in the future, a growing influence on financial markets. Instead of publishing endless comments on its economic slowing or shocks affecting its stock exchange, which is still in an adolescent phase, it would be better to think about the economic consequences of the Yuan internationalization and of its use, which will be progressive but also irreversible, in China commercial and financial transactions. That will lead to a fall of Popular Bank of China reserve currencies, today excessive, with more than 3000 bns dollars. That means also a reduced appetite for the acquisitions of U.S. Treasury bonds or euro emissions. Developed countries must be prepared to live with this new situation. The Yuan, in the future, will fluctuate not only against the dollar but will follow all major currencies. The purpose of the August “devaluation”, in fact modest, was to cope with the risks China had to face regarding much more important devaluations from its trade partners, Japan, South Korea and the eurozone whose currencies had dropped against the American currency. Same mutation will affect financial markets. Multinational companies will have in the future a larger choice to raise money and will less and less hesitate, for their investments in Asia, to appeal Chinese investors.
The third turning point was the Federal Reserve decision to raise its benchmark interest rate as a sign of the return of American economy to a “normal” growth path, eight years after the sub-prime crisis during 2007 summer. A step has been passed. Unemployment rate has declined to around 5%, which is a substantial progress, even if the activity rate is still weak, which turns down any risk of wage inflation. Economic growth has benefited from the oil and natural gas production strong rise, thanks to the discovery of oil reserves workable through new technologies and of shale gas. Downstream industries, refinery, natural gas terminals or petrochemical plants started to invest again to take advantage of these new natural resources. The restarting of American economy is also the result of the adopted strategy based on the acceptance of a large public deficit and a strong currency, which, contrary to dominant thinking in Europe, was not an obstacle to growth. The United States, which excessive private debts provoked one of the most severe crises the world has known, will have brought the evidence that, in 2015, they have remedied to their unbalances and that their economy has durably rebounded.
For Europe, as a contrary, the year 2015 has been characterized by its incapacity to renew with a sufficient development rhythm and by an unprecedented and growing gulf between people aspirations and its ability to satisfy them. Audience, everywhere growing, of openly anti-Europe political parties is the result of this divorce, even among new State-Members, which is a height, as in the whole south of the continent. The eventuality of a “Brexit” which rose this year, after the large success of the Tories, with their proposal to organize a referendum on this issue, has introduced an additional weakness. Economic choices, imposed by Brussels under the pressure of Berlin, proved to be wrong. Euro fall and the priority given to the reduction of deficit and public debts did not generate a return to growth. Unemployment staid at too high levels, unlike the U.S. and with the exception of countries with a demographic crisis, like Germany, The American example shows that a stronger currency is not an obstacle and that it is easier to reduce deficit when growth is back than to adopt the opposite strategy. Defiance, provoked by the economic failure has been increased by the delays to respond to Greek financial crisis and the migrants arrivals. The finishing year has been ominous for the future of the European project.
That year has not been better for France. The diplomatic success of COP 21 and the worthy and determined attitude of French leaders facing terrorist exactions wouldn’t live down the economic failure. For the fourth following year, the country has endured stagnation and unemployment has grown. The economic strategy, initiated in 2013, relied on a massive cut of social and fiscal charges paid by enterprises, to reduce their cost and to increase their margins in order to invest and to regain market shares, has failed. In the same time, to satisfy European constraints regarding public deficits, the State has increased tax burden on households, frozen public sector payrolls and reduced social transfers, making impossible any internal demand rebound, families choosing to save, waiting for a better future and businesses to have clients before hiring new employees. In addition, the State has not be able to take advantage for itself of the low interest rates decided by the ECB, which could have given it some rooms of maneuvers to reduce the constraints weighting on households. Regarding the fall of the euro, it did not have the expected effects by its promoters, since, supreme paradox, trade balance, before taking into account energy, has deteriorated. Certain negative effects have topped expected benefits, which were, at the end, illusive.
2015 has been a turning point: many well received economic notions have been invalidated, for the best in the U.S. and for the worst, in France. China has significantly progressed with its strategy to become a great international financial power since Europe, at the opposite, has regressed. The fall of fossil energies prices looks to be durable and makes more complicated the responses to the challenge posed by the climatic warming. Leaders, all around the world, will have to take notice of these transformations.