In 2012 Mario Draghi, the European Central Bank (ECB) President, announced that the ECB would do "whatever it takes" to save the Eurozone. The injection of massive central bank liquidity since then has driven down borrowing costs across the Eurozone (EZ) and the periphery, substantially easing the risk of sovereign failure and the collapse of the EZ. Yet despite these efforts, unemployment remains stubbornly high, credit growth continues to contract, reforms have been slow and government debt continues to grow. In short, economic fundamentals have barely improved and growth remains weak and uneven.

To make matters worse, China, the juggernaut of global growth over the last decade, is undeniably slowing and potentially on the cusp of a hard landing. A fall in demand for steel from China's residential construction sector has led to sharp falls in global commodity prices (exacerbated by the large increase in global supply). Rampant over-investment means that the fall-out may have only just begun. The risk of a significant increase in bad debts as property developers, construction companies, contractors and investors fail over coming months is now high. As these bad debts cascade through China's banking sector, China's economy will inevitably slow further. Whether Authorities can avoid a hard landing by absorbing the bad debts remains to be seen.

Fortunately, growth in the United States has accelerated in recent months. We believe domestic demand in the United States is sufficiently strong to withstand weakness in China and Europe. As a result, we expect modest global growth in 2015.

United States



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