Consumers are feeling flusher because of pay raises, lower gas prices
By Christopher S. Rugaber
AP Economy Writer
WASHINGTON (AP) - From the United States to Asia to Europe, a global economy that many had feared was faltering appears poised for a resurgence on the strength of cheap oil and falling interest rates.
That's the strikingly upbeat view of economists surveyed by The Associated Press, who no longer see Europe's financial crisis, the U.S. housing market or congressional gridlock as the threats they appeared to be last year.
"The U.S. is doing well, you're getting a lot of good news in Europe," said Nariman Behravesh, chief economist at IHS Global Insight. "The global economy is gaining traction."
U.S. consumers are feeling flusher, thanks to lower gas prices, a burst of hiring and long-awaited if still-modest pay raises for many. Their spending is expected to boost growth this year in the United States and overseas.
The brighter outlook marks a turnaround from last fall, when a looming war in Ukraine, the rise of the Islamic State terror group and a reluctance by the European Central Bank to expand its stimulus efforts led analysts to downgrade their view of the global economy.
Weaker growth in China has also hurt exporting countries from Latin America to Australia that had long benefited from China's appetite for farm products, copper, iron ore and other commodities. China's growth decelerated last year to its slowest pace in a quarter-century.
Still, most economists expect China to avoid a further slowdown. Its central bank cut rates last weekend for the second time in three months to try to accelerate growth.
The AP surveyed nearly three dozen corporate, Wall Street and academic economists from Feb. 19 to 25. A majority said they thought struggling economies in Europe and Japan would benefit from lower-priced energy and ultra-low loan rates engineered by central banks.
Behravesh predicted that freer-spending U.S. consumers would provide help. He noted that their collective spending represents a bigger force than any other nation's economy.
American consumers have benefited from the 1 million-plus jobs U.S. employers have added in the past three months. More than 3.2 million more Americans are earning paychecks than were 12 months ago.
In January, U.S. gas prices reached a five-year low, though they've since rebounded. A gallon cost an average of $2.44 nationwide Tuesday, more than a dollar cheaper than it did 12 months ago, according to AAA.
So far, many Americans have saved the extra cash from lower gas prices. But even that's a hopeful sign: It means consumers - who fuel about 70 percent of the U.S. economy - have more money to spend in coming months. The U.S. savings rate reached a two-year high in January.
Among the other views the AP's survey of economists revealed:
- The Federal Reserve will likely start raising its key short-term rate from record lows in September. That's a shift from the AP's previous survey last fall, when most of the economists predicted a rate hike in June. The plunge in energy prices, which has helped cut inflation further below the Fed's 2 percent target, has led many economists to push back their forecast for a rate increase.
- The outlook for broad-based U.S. pay increases is brightening. A majority think the average hourly wage will begin growing at least 3 percent a year sometime between the middle of this year and mid-2016.
- Republican control of both chambers of Congress, arrayed against Democratic President Barack Obama, means political gridlock will persist. Yet the economists don't think a congressional standoff will hurt the economy.
- With a rise in the number of Americans forming households, home construction should accelerate this year and help stimulate economic growth.
- The Trans-Pacific Partnership, a trade deal the Obama administration is negotiating with Pacific Rim countries, would accelerate job growth without widening the U.S. trade deficit.
The economists' rosier outlook for a still-ailing European economy is based in part on the benefits of cheaper oil. Further help will come from a lower-valued euro, which boosts exports, particularly for an export powerhouse like Germany.
Banks in the 19 countries that share the euro currency are also lending a bit more. And the ECB has launched a stimulus program intended to lower borrowing rates and boost growth.
All those moves contrast with Europe's budget-cutting and tax increases of previous years, which held back growth. Consumer confidence in the eurozone reached a seven-year high last month, according to JPMorgan Chase.
"The eurozone is recovering, and oil price declines and a weak currency are a bonus," said Mike Englund, chief economist at Action Economics.
A sign of resiliency was visible last month when Greek and European officials wrangled over the terms of Greece's financial bailout. The negotiations raised long-dormant concerns that Greece might exit the euro. But Behravesh, the IHS economist, noted that other troubled European countries, such as Italy and Portugal, didn't experience a jump in bond yields. That's a sign that Greece's troubles didn't spill beyond its borders, a shift from four years ago.
Europe and Japan are expected to accelerate this year, though at less-than-healthy speed. Economists think both will grow about 1.5 percent, up from zero last year for Japan and less than 1 percent for Europe.
"It doesn't take much to accelerate from near zero," said Dean Baker, an economist at the Center for Economic and Policy Research. "The austerity is largely in the past, and the oil price declines are equivalent to big tax cuts."
Published: Thu, Mar 05, 2015
