US: MODERATELY POSITIVE

US growth will grow at a modest 2.6 percent in 2015.

Profitability may come under increased pressure as the business cycle matures
and cost increases are imminent.

Americas strength in technological progress needs to help accelerate

productivity.
EURO-AREA: CAUTIOUS SHORT-TERM OPTIMISM, BUT DOWNSIDE RISKS
ACCUMULATE

Despite significant downside risks, the Euro Area is projected to grow at 1.6
percent in 2015, almost double that of 2014.

Modest recovery in domestic consumption is a likely source of growth as labor

markets improve.

However, disinflation or even deflation could bring growth rates further.

ASIA-PACIFIC: CHALLENGING IN CHINA; MOSTLY POSITIVE ELSEWHERE

Despite softening growth rates, the Asia-Pacific region remains the leader for
global growth.
Growth rates of China and India are converging to 5.5 percent from 20152019.

Despite short-term headwinds from global economy, Southeast Asia will

strengthen to global production base.
LATIN AMERICA: UPSIDE POTENTIAL

Economic conditions in Latin America are unlikely to improve rapidly in 2015, with
regional growth at only 1.8 percent.

Slowing prices for commodity and energy exports provide significant downside.

Productivity growth should build on investment, improved business confidence,

and a better educated labor force.
AFRICA: POSITIVE, BUT UNCERTAIN

GDP growth in Africa in 2015 is projected at 4.4 percent.

Nigeria will be the strongest performer at 6.7 percent growth in 2015, but heavily
dependent on natural resources and vulnerable to global demand.

A positive growth outlook for Africa is strongly dependent on improved

institutional performance and better governance.

OK, everybody, lets get excited about 2015. Sure, theres Ebola and Vladimir Putin and
Islamic State terrorism. Western Europe is back in an economic rut, Japans recovery is
faltering again, and China looks as if its headed for its slowest growth since 1990. But
there are good things happening, too. Like, well, strong sales of recreational vehicles

made in northern Indiana! Were in the recoverywere recovered, says Derald

Bontrager, chairman of the Recreational Vehicle Industry Association. Obama visited
this area three times. We were referred to as the white-hot center of the economy.
Bontrager, the chief executive officer of family-owned Jayco in Middlebury, Ind., predicts
the industry will tie unit sales records in 2015 and break them in 2016, thanks to rising
U.S. employment and continued low interest rates.
The good times arent confined to northern Indiana, the hub of RV manufacturing. The
U.S. as a whole is emerging as the most likely candidate to power world growth in 2015.
North Dakota is crazy busy with shale oil production. Seattle is swamped
with Boeing orders. In Silicon Valley, Apple is selling tons of iPhones. New York City has
more jobs than ever, as tech companies such as Google (with more than 4,000
employees in the city) lead the way.
Its a welcome turnabout for the U.S., which until recently was the planets pariah. Japan
called the 2008-09 financial crisis the Lehman shokku, and France dubbed it la crise
des subprimes. After political brinkmanship brought the federal government within a
whisker of default in 2011, Chinas Xinhua news agency warned, It is time for the
naughty boys in Washington to stop chicken games before they cause more damages.
Now its the rest of the world thats botching things. The International Monetary Fund
called global growth mediocre in October in its latest outlook. Chief Economist Olivier
Blanchard wrote that secular stagnation in advanced economies remains a concern,
and emerging markets cant grow as fast as they used to without inflation.

Whether youre the CEO of a multinational or a sole proprietor, it pays to have a sense
of where the opportunities lie and the dangers lurk in 2015. Thats what this special
issue is about. In the following pages, we offer a detailed look at key people, industries,
and regions, along with the most important emerging trends. This introduction focuses
on the macroeconomic picturein other words, the conditions that will help or hinder all
you strivers in 2015.
The map gives a snapshot of whats ahead, based on the latest IMF forecast. South
America is a mess, with Argentina and Venezuela leading the losers parade and Brazil
not far behind. Russia and Western Europe are weak. All three economies of North
America are looking pretty solid. The strongest growth is projected to be in South and
East Asia as well as much of Africa, which is starting from a low base. Then theres
Greenland, which islarge. (The Mercator projection exaggerates the polar latitudes.)

The unifying theme is that the global economy is taking longer than expected to
recuperate from the bursting of the debt bubble during the last decade. Three years
ago, the IMF projected that the world economy would be back on track by 2015,
growing at 4.8 percent. The U.S. has pretty much met the IMFs (diminished)
expectations. The disappointments, says the IMF, have been the BRIC nationsBrazil,
Russia, India, and Chinaas well as parts of the Middle East, Europe, and Japan.
Thats led the IMF to reduce its forecast for 2015 global growth to 3.2 percent. It
projects 3.1 percent growth for the U.S. next year, just 1.3 percent in the euro area, and
0.8 percent for Japan. Chinas projected 7.1 percent growth, high compared with other
nations, would be the countrys lowest in 15 years. China isnt geared for such a
slowdown: Indebted investors such as property developers could default on a large
scale if expansion comes in much below their expectations. The disparity in growth
rates among the big four economiesthe U.S., China, Japan, and the euro zonewas
what Treasury Secretary Jacob Lew was referring to in October when he told
Bloomberg, You need all four wheels to be moving, or it isnt going to be a good ride.
Expect continued dissonance among economic policymakers in 2015. A taste of that
came in late October, when the Federal Reserve announced it was ending its third
round of bond buyingand two days later, the Bank of Japan said it was expanding its
own bond purchases. Quantitative easing, as the bond purchases are called, is
designed to drive up the market price of bonds. When prices rise, yields fall, lowering
the rates for mortgages and other loans that matter to consumers and businesses. Next
year, the European Central Bank may embark on its own quantitative easing over the
objections of Germanys conservative Bundesbank. That remains our expectation for
early next year, economists at Barclays wrote on Oct. 31.

Fights over taxing and spending will probably heat up next year, especially in the euro
zone, where France and Italy are clashing with Germany over how big their budget
deficits can be. The European Commission in Brussels allowed the French and Italians
to run oversize deficits in October but warned that all euro countries will get an in-depth
assessment in mid-November. Germanys insistence on austerity makes it hard for euro
nations to spark economic growth, says Dennis Gartman, author of a daily market
commentary. I tend to be a far right-winger, says Gartman, but there are times when
you cant run balanced budgets. When you have 15 percent unemployment, thats one
of the times.

Some things about 2015 are known, such as the continued warming of the planet.
Others are unimportant, like who wins the Super Bowl on Feb. 1 in Phoenix. (Sorry,
football fans.) Keep an eye on things that are unknown and important: Will Russias and
Chinas clashes with their neighbors escalate into armed conflict? Will the Ebola
epidemic break out of West Africa on a large scale? Will China snuff out Hong Kongs
democracy movement? Will British elections in May increase pressure on the United
Kingdom to drop out of the European Union? Will one of the conflicts in the Middle East
boil over? Any one of those could make 2015 a very ugly year.

Then again, there could be happy surprises. In the U.S., fracking and horizontal drilling
continue to exceed expectations, raising domestic crude oil production more than 50
percent in just four years. Not only has the oil and gas boom shrunk the U.S. trade
deficit and lifted the economies of Texas, North Dakota, and other oil patches, its also
boosted consumers and the manufacturing sector. The U.S. will someday have the
lowest cost of energy in the world, says Keith Nosbusch, CEO of Rockwell Automation.
As a bonus, falling oil prices have diminished the power of countries such as Russia
and Iran to finance troublemaking abroad. Irans government runs deficits when Brent
crude drifts below $138 a barrel.
The oil boom is a victory for drilling technology, much of which was invented in the U.S.
and is being deployed worldwide. Thats an example of an important theme for 2015:
Business investment spurred by innovation may rescue the world from its protracted
slump. Consumers are still having a hard time paying down debt because their inflationadjusted incomes have fallen since the 2007-09 recession. Business is in a better
position to lead the recovery. Companies are sitting on record amounts of cash
because, with demand weak, they dont feel any pressure to update their plants,
equipment, and software. Great new technologies could set off a burst of capital
spending by convincing CEOs they must have the next new thing to get ahead of the
competition or avoid falling behind it.

Capital spending is the most volatile sector of the economy and often what turns slumps
into booms. Michael Englund, chief economist of Action Economics in Boulder, Colo.,
says theres rapidly rising demand for drilling and mining technology, medical gear, and
efficient passenger jets. It so happens that U.S. companies such as
Halliburton, Medtronic, and Boeing are leaders in those areas, but the benefits accrue to
the buyers of the new technologies around the world, not only to the sellers.
New fuel-efficient jets from Boeing and its European rival, Airbus, are an example.
Airlines are shelling out billions for new fleets because their upfront cost is more than
balanced by future savings, even at todays lower prices for jet fuel. It helps that air
travel growth has been strongpassenger-miles rose 6.7 percent in the 12 months
through August. From a macroeconomic perspective, the important thing is that this
investment boom doesnt depend on strong overall economic growth, says Englund.
For the U.S. economy, the most critical unknown is whether 2015 will be the year the
Federal Reserve finally begins to raise the federal funds rate, which it has locked at
zero to 0.25 percent since the end of 2008. The lowest funds rate in history was
perceived as an emergency measure during the financial crisis, but the economy still
hasnt shown that it can thrive without it. Critics say that cheap money is inflating asset
bubbles and that the unemployment rate5.9 percent in Septemberis as low as it can
get without generating dangerous wage inflation.

The median forecast of the members of the rate-setting Federal Open Market
Committee is for the funds rate to reach 1.25 percent to 1.5 percent by the end of 2015.
Traders in the futures market are skeptical. Theyre collectively betting that the funds
rate will be only about 0.5 percent by then. Thats either a vote of no confidence in the
U.S. economic recovery or a sign that traders think Fed Chair Janet Yellen is a dove
who will keep rates low even after the economy gains strength, or maybe a little of both.

A Fed hike, whenever it comes, could affect growth, inflation, and exchange rates
around the world. All else equal, higher interest rates in the U.S. would tend to attract
more investment to the country, pushing up the value of the dollar vs. other currencies.
That probably wouldnt be enough to damage U.S. competitiveness significantly; even
with its recent rebound, the dollar is still cheaper than it was a decade ago. If U.S. rates
rise, countries such as India and Brazil that are fighting high inflation might be forced to
raise their own rates to keep their currencies strong and avoid a spike in import prices.
On the other hand, Europe and Japan, which have no fear of inflation, might welcome a
drop in their currencies, which could spur exports and raise growth. Devaluing is a
mechanism to push deflation abroad, says Stephen King, chief global economist at
HSBC in London. Its a 21st century beggar-thy-neighbor policy.
Americastill the worlds tallest midget, read a headline on a report in late October by
David Rosenberg, chief economist at asset manager Gluskin Sheff. The shorter midgets
regard the U.S. with envy. In the euro zone, the straitjacket of a single currency works
as the gold standard did before countries abandoned it during the Great Depression: It

prevents weaker economies such as Greece and Portugal from depreciating their
currencies, which can be a quick way for a nation with high labor costs to boost its
exports and juice its economy. As for Japan, a sharp increase in consumption taxes
walloped its economy this spring. A second increase is scheduled for 2015, but Prime
Minister Shinzo Abe may seek to delay it if the economy remains weak. The Japanese
are throwing anything they can at the wall to make something stick to ward off
deflation, says David Morton, a partner at Rocaton Investment Advisors.

China is suffering its own brand of deflation. Wholesale prices have fallen every month
since April 2012. Although President Xi Jinping has vowed to promote consumer-led
growth, which would please the public by raising living standards, his efforts have fallen
short. Business investment accounted for 49 percent of GDP last year, up from 35
percent in 2000, according to World Bank data. So much spending on plants and
equipment leads to excess production capacity, which encourages price slashing that
destroys profitability. China is a major importer of raw materials, so a slowdown in 2015
would continue to harm resource-rich nations in Asia, Latin America, and Africa.
Chinese authorities are likely to try to help specific sectors like agriculture and small and
midsize enterprises, but their levers are becoming less effective, says Andrew Polk,
resident economist at the Conference Board China Center for Economics and Business
in Beijing. The downward pressure on the economy is too powerful to be offset by slight
policy adjustments.

One drizzly day this fall, Carnival UK Chairman David Dingle sat in a lounge of the
Cunard Lines Queen Mary 2, which was docked in Brooklyn, N.Y. He said demand for
sea travel was good despite news reports about Ebola. For a discretionary business
such as ours, Dingle said, seeing what we hope is the final end of a recessionary
period is very good. Its really been a period where we had to tighten our belts
considerably. Pricing overall was still bumpy, he said, but it was beginning to recover
at Cunard, a luxury brand.
Cunard saves money on fuel by propelling its hulls through the waves at a slower pace.
Trans-Atlantic voyages that decades ago took five and a half days are now taking eight,
Dingle said. Its an apt metaphor for the world economy in 2015: slower than it once was
but moving forward. Hours after Dingle provided his upbeat outlook, the QM2the
ocean liner, mind you, not some exotic form of quantitative easingset sail for the
Canadian Maritimes.
India
IMF and World Bank forecast 6.4 per cent for Indian economy which accounts for 80 per
cent of South Asia's output in 2015, citing renewed confidence in the market due to a
series of economic reforms pursued by the new government. While for China its 7.1 per
cent. With economic activity buoyed by expectations from the newly-elected
government of Prime Minister Narendra Modi, India is benefiting from a "Modi dividend",
the bank said in its twice-a-year South Asia Economic Focus report. Over the next year
or so economic growth should be supported by the recovering US economy that would
provide a market for Indian merchandise and service exports. Future growth will
increasingly depend on strong investment and export performance. Private investment
is expected to pick up thanks to the government's business orientation, and declining oil
prices should boost private sector competitiveness. But economic reforms will be
needed for India to achieve its full long-term growth potential. The Sensex may reach to
the level of 33,000 by the end of the current calendar year. We are setting year-end
(December 2015) Sensex target at 33,000 (imputed Nifty target of 9,936), implying an
upside of 23 per cent from current levels. The cut in global crude oil will help the
country's economy to grow further. The key policy rates may come down by 50 bps by
March which will be followed by further rate cut by 50 bsp by the first half of the next
fiscal.

Investments

US-based Nike has made a proposal to the Department of Industrial Policy and
Promotion (DIPP) to set up fully-owned stores in India. Nike is one of the world's largest
suppliers of athletic shoes and apparel globally, with a market capitalisation of US$ 68
billion. US-based Milacron Llc plans to invest US$ 30 million in the next three years in
its India operations Ferromatik Milacron India Pvt Ltd (FMI), as per president and
CEO, Mr Thomas Goeke. FMI manufactures plastic moulding machines at its plants in
Ahmedabad in Gujarat and Coimbatore in Tamil Nadu. Bengal looks set for one of its
biggest foreign investments. A large private equity firm which has exposure in social
infrastructure and agriculture plans to invest over Rs 300 crore (US$ 49.02 million) in
the proposed Dankuni food park promoted by Keventer Group. The Foreign Investment
Promotion Board (FIPB) has approved a proposal from InterGlobe Aviation, the
company that runs IndiGo, to reclassify shareholding of promoter Rakesh Gangwal as
Non-Resident Indian (NRI) from FDI at present. This move enables the airline to have
access to fresh FDI. Norway's Telenor Group plans to invest an additional Rs 780 crore
(US$ 127.47 million) to increase its ownership in Indian subsidiary Uninor to 100 per
cent; Telenor currently owns a 74 per cent stake in Uninor. Chinese telecom equipment
maker ZTE Corporation plans to establish a Global Network Operating Centre (GNOC)
in India. The centre will seek to manage the networks of multiple telecom carriers in
Asia and Africa. Japan's Suzuki Motor Corporation (SMC), the parent company of Maruti
Suzuki, will spend Rs 18,500 crore (US$ 3.02 billion) to establish a new factory in
Gujarat. SMC plans to establish a 100 per cent subsidiary, Suzuki Motor Gujarat (SMG),
to manufacture cars on a strictly no-loss, no-profit basis for Maruti Suzuki. US-based
Leapfrog Investment has bought a minority stake in Chennai-based financial services
provider IFMR Capital Finance for US$ 29 million. This marks Leapfrog's third
investment in India, after having earlier backed insurance distribution firm Mahindra
Insurance Brokers and Shriram CCL.

Government Initiatives
Indias cabinet has cleared a proposal which allows 100 per cent FDI in railway
infrastructure, excluding operations. Though the move does not allow foreign firms to
operate trains, it allows them to do other things such as create the network and supply
trains for bullet trains etc. Based on the recommendations of the FIPB in its 207th
meeting held on July 4, 2014, the government approved 14 proposals of FDI amounting
to about Rs 1,528.38 crore (US$ 249.78 million). Additionally, based on the
recommendations of the FIPB in its meeting held on June 11, 2014, the government
approved 19 proposals of FDI amounting to about Rs 2,326.72 crore (US$ 380.25
million). The Union Cabinet has cleared a bill to raise the foreign investment ceiling in
private insurance companies from 26 per cent to 49 per cent, with the proviso that the
management and control of the companies must be with Indians. The Reserve Bank of
India (RBI) has allowed a number of foreign investors to invest, on repatriation basis, in
non-convertible/ redeemable preference shares or debentures which are issued by
Indian companies and are listed on established stock exchanges in the country. In an
effort to bring in more investments into debt and equity markets, the RBI has

established a framework for investments which allows foreign portfolio investors (FPIs)
to take part in open offers, buyback of securities and disinvestment of shares by the
Central or state governments. The government has taken ordinance route to increase
foreign investment limit in the insurance sector to 49 per cent, from 26 per cent
currently. Besides, it has also liberalized foreign direct investment (FDI) policy for
medical devices. Under the 'Make in India' campaign, the Prime Minister has asked
foreign and domestic firms to set up manufacturing units in the country to create jobs
and boost economic activities in the country. Similarly, it has taken a series of steps to
improve ease of doing business that include having a time line for clearance of
applications, de-licensing the manufacturing of many defence products and introduction
of e-Biz project for single window clearance.

Road Ahead

Foreign investment inflows are expected to increase by more than two times and cross
the US$ 60 billion mark in FY15 as foreign investors start gaining confidence in Indias
new government, as per an industry study. "Riding on huge expectations from the
incoming Modi government, global investors are gung ho on the Indian economy which
is expected to witness over 100 per cent increase in foreign investment inflows both
FDI and FIIs to above US$ 60 billion in the current financial year, as against US$ 29
billion during 2013-14," according to the study.
India will require around US $1 trillion in the 12th Five-Year Plan (201217), to fund
infrastructure growth covering sectors such as highways, ports and airways. This
requires support in terms of FDI. The year 2013 saw foreign investment pour into
sectors such as automobiles, computer software and hardware, construction
development, power, services, and telecommunications, among others.

BRIC GDP growth rates (2011-13) and projections (2014-15)

2011

2012

2013

2014

2015

Brazil

2.7%

1.0%

2.5%

0.3%

1.4%

Russia

4.3%

3.4%

1.3%

0.2%

0.5%

India

6.3%

4.7%

5.0%%

5.6%

6.4%

China

9.3%

7.7%

7.7%

7.4%

7.1%