Global growth looks set to be 3% in 2015, the weakest annual growth rate since the global recession of 2008/09, and well below the 5.4% average of the decade prior to the recession. But underneath that disappointing headline rate, there is significant variability. In the US, growth has continued to be robust, while in the euro area the recovery remains modest in pace, but has delivered ten consecutive quarters of positive growth. It has been in the emerging market countries where growth has been more disappointing. While China has slowed broadly in line with expectations, the deep recessions in Brazil and Russia have been a significant drag. Looking ahead, we expect those trends to persist over the coming year, with the developed market energy importers seeing continued growth momentum, while emerging market and commodity exporters slow. In their latest update, the IMF forecast global growth to rise steadily over the coming years, albeit slightly slower than they had expected previously.

The recent further move down in oil prices will see the expected recovery in global inflation delayed somewhat. However, even with oil prices at current levels, headline inflation will start to pick up in the second half of 2016. With limited and shrinking spare capacity in the US, core inflation should also move higher and the Fed are likely to raise rates 3 or 4 times this year. In contrast, the significant amount of slack in the euro area, alongside risks of inflation expectations de-anchoring on the downside could see the ECB ease policy again in 2016. Further policy stimulus is also likely in China, as the authorities try to manage the difficult economic transition taking place there.