Welcome to the Year of the Goat. The goat is a symbol of harmony, peace and tranquillity. Despite this, I have recently received several warning messages about how this year will turn out to be a terrible year. Personally, it is supposed to be a good year for me and my zodiac sign, but it does not seem to be the case for the world in general.
The global economic environment has been very volatile since the start of the year. What asset managers call "tail risk", or increased deviation from the normal range of price movements, is now all over the place. The Swiss franc and oil price collapse were pretty good reminders. Oil went down 60% in a matter of months, causing repercussions in many countries. The Swiss franc jumped as much as 30% after the Swiss National Bank abandoned the peg to the euro, giving rise to one of the biggest currency moves since the collapse of the Bretton Woods system in 1971.
It is very hard to make any predictions this year, as we will likely see increasing volatility in many places of the world. Even though I am not making predictions, there are several useful opinions and forecasts on the global economy. Here are a few of them.
The global CEO survey, released at the World Economic Forum in Davos last week, showed that business leaders were less optimistic than they were a year ago. Thirty-seven percent of chief executives surveyed thought global economic growth would improve, compared with 44% last year.
In its latest report, the International Monetary Fund reveals that the boost from lower oil prices is being more than offset by negative factors. It now expects global growth to go up only slightly, from 3.3% last year to 3.5% this year, a downward revision from the growth forecast of 3.8% it made in October 2014. It also predicts growth picking up only slightly next year, cutting its 2016 forecast from 4% to 3.7%. The revisions are based on the outlook in the euro zone, China, Russia and Japan as well as weaker performance of major oil exporters.
Despite an expected benefit from lower oil prices, the World Bank has also cut its forecast for global growth in 2015, reflecting a number of negative factors including slow recovery in the euro zone, tighter monetary policy in developed countries, a less dynamic outlook in emerging markets, and weak world trade. The bank is forecasting global growth of a modest 3% this year, down from a 3.2% prediction in October.
Many others are not positive about global prospects either. According to Paul Krugman, the Nobel prize-winning economist, the future for the world economy is scary because of the threat of deflation.
Switzerland's experience is an example of just how difficult it is to fight the deflationary pressures that are now affecting much of the world. Although he believes there will not be another financial crisis on the scale we saw in 2008-09, it is still a scary world.
Economist Nouriel Roubini sees that among the major economies of the US, Europe, Japan and China and other emerging markets, only the US is doing well. And the risks remain whether the US will be able to insulate itself from the rest of the world if there are economic troubles everywhere else. Marc Faber, a renowned economic historian, has warned that 2015 is going to be very volatile and full of surprises. So diversification is the key.
Given that most forecasts are gloomy, it is important to prepare well for the future, especially if you are an investor. The world of investing this year will no doubt be quite hard. If you do not have any particular investment pick in mind, it is important to have the right mindset. There are a few investment ideas from some of the world's best investors that I would like to share:
"If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume" — Benjamin Graham, legendary value investor
"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years" — billionaire investor Warren Buffett of Berkshire Hathaway
"If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards" — Wall Street investor Peter Lynch of Fidelity
"The whole secret to winning and losing in the stock market is to lose the least amount possible when you're not right" — William J O'Neil, the founder of Investor's Business Daily.
"It is normally darkest just before the dawn and just when you're looking into the abyss, feeling that the financial system might collapse or that no one will ever want to buy equities again, the market turns" — UK fund manager Anthony Bolton of Fidelity.
With this, I wish you good luck, success and peace of mind in 2015.
Dr Tientip Subhanij holds a PhD in economics from the University of Cambridge, and currently has a career in banking as well as academia. She can be reached at tien201@yahoo.com