The slowdown in Chinese economy triggered fears over a global recession, while the deflationary risks prevailed in the eurozone and Japan all throughout the year.
Greece became the first developed country to default on an IMF debt and Puerto Rico got the title for the first US commonwealth which defaulted.
The US economy on the other hand, showed signs of strong recovery, leading the US Federal Reserve to hike its interest rates first time since June 2006. But since Fed’s rate increase happened in mid-December, global markets have been volatile due to the uncertainty created over the timing of the hike.
The drop in oil prices which had started in June 2014 continued, causing oil exporting countries like Russia, Venezuela and Saudi Arabia to suffer economically.
Meanwhile, historic agreements have been sealed this year. Iran’s nuclear deal with the West and Trans Pacific Partnership mark the most important two. Also, German car maker Volkswagen found itself in a notorious position for shocking the whole world with a scandal.
Fed’s interest rate hike uncertainty
Global economy has been battling recession since 2008 and the US central bank, the Federal Reserve stepped in to save world's biggest economy, the US. In order to achieve this, it took unorthodox measures and cut interest rates to historic low levels.
Thanks to Fed's measures, the job market in the US has enjoyed a rapid growth. Three million people have found work over the last year alone.
This improvement led the central bank to decide to 'normalise' its policies and after creating uncertainty all throughout the year, the Fed finally raised interest rates by 25 basis points in December.
It was the first hike since September 2006, and Fed Chair Janet Yellen signaled gradual hikes to come next year. Even the idea of Fed’s rate hike created unrest in global markets, especially in emerging countries. It was feared that capital outflows would accelerate upon the monetary tightening step.
A recent data revealed that over the past year already one trillion dollars flew out of the developing world, because Fed’s move would attract money back to the US. But on the contrary, after the decision, the pressure on the emerging markets eased and currencies gained against the dollar. Due to the agenda Fed created, all of the other central banks were overshadowed by it, except the European Central Bank.
While the Fed tightened its monetary policy following the recovery in US economy, the ECB on the other hand eased its policies even further. Also in its December meeting, the central bank pledged to extend its €60 billion a month bond buying program until March 2017.
Oil and oil exporting countries are the losers of 2015
Global oil prices have fallen sharply over the past year, leading to significant economic troubles in oil exporting countries. For 10 years prior to the downturn, oil had sold for between $90 and $100 a barrel. But in June of 2014, the market started its latest downward trend, reaching its lowest levels since the recession in 2009.
Oil prices are now half of they used to be and the fall continued all throughout 2015, as well. There are multiple reasons for the fall in oil prices. US shale gas has driven up global supplies at a time when global demand has started to wane.
China’s economy, the second largest in the world, started to slowdown. When these are combined with the strengthening US dollar, in which oil prices are denominated, the price fall became inevitable. Meanwhile, the oil cartel Organization for Petroleum Exporting Countries (OPEC) has an important role in the oil markets.
OPEC has the mandate to “ensure the stabilisation of oil markets” and the “ability to intervene” directly in the pricing. But even after oil prices came down below fiscal break-even levels for many OPEC members, they refused to cut production.
Venezuela, Iran and Algeria have tried to convince OPEC to cut production to stabilise prices. But the Saudis believe cutting production would cost them market share against the US and Russia.
However, oil and oil exporters were not the sole ‘losers’ of this year. The gold price has fallen 10 percent this year alone, below the critical level of $1,100. Four years ago it was trading around $1,800.
Greece and Puerto Rico default
The Greek debt crisis first emerged in 2008, during the outbreak of the global financial crisis leaving the country in trouble ever since. 2015 was a particularly hard year for Greece. The Greek people went to the polls three times within one year.
The snap election in January paved the way for left wing anti-austerity party Syriza led by current Prime Minister Alexis Tsipras to come to power. Although Greece owed a lot of money to its international creditors, which bailed Greece out already twice before, Tsipras quickly pushed for changes to the conditions of the existing bailout package and declined to adopt the necessary austerity measures such as pension cuts.
After months long fruitless talks, no deal was agreed and Greece became the first developed country to default on 1.6 billion euro IMF debt.
Despite the bailout Greece remained in the eurozone and reached an agreement with its creditors after hard talks. The country agreed to adopt tough austerity measures in return for unlocking the third bailout.
Known as the “Greece of the Caribbean” Puerto Rico has also been in trouble this year and it became the first US commonwealth to default. The country has been battling recession since 2006.
Trans Pacific Partnership and Iran’s Nuclear deal with the West
Two historic international agreements earned themselves an unforgettable spot in 2015. First, after years of long isolation from the global economy, which began with the Islamic revolution in 1979, Iran managed to get back in the global game.
On July 14, 2015 negotiators from the United Nations Security Council, the United States, the United Kingdom, Russia, France, China, plus Germany and Iran signed a deal, which aims to limit Iran’s nuclear programme.
Since the announcement of the deal, Iran has been witnessing a wave of international investors returning to the country. Once sanctions are lifted, Iranian officials believe the country's oil exports will double reaching 2.3 million barrels a day.
The other monumental deal is the Trans Pacific Partnership (TPP), signed by 12 countries including the US and Japan. The TPP has taken a major step towards becoming the biggest trade agreement in the world.
The creation of the new economic bloc covers 40 percent of the global economy, and has a total export value of $5.6 trillion. Some economists forecast that the TPP will boost global growth by nearly $300 billion a year.
The agreement brings along new trade rules, as well. For example, Vietnam will have to allow independent unions for the first time in its history. And countries will get in trouble if they fail to crack down on things like trafficking of endangered animals, or failing to enforce environmental laws. However, in order for the deal to become functional, it has to be signed by each country’s leader and ratified by their parliaments.
Most shocking scandal of the year: VW
Germany’s biggest carmaker, Volkswagen has rocked the world in 2015. For years, Germany lobbied against stricter regulations for automakers and it appeared that VW had set a fine example. But the US Environmental Protection Agency revealed that the company cheated on emissions tests in the US since 2009.
Volkswagen fitted its diesel engine vehicles with a software that could detect when the cars were being tested for pollution. To pass the tests, the cars changed their performance. They would emit less carbon than under normal driving conditions.
The scandal not only damaged the idea of German reliability, but it also created concern that the largest economy in the eurozone would get affected by the large amount of fine the car maker faces.
Right after VW, its subsidiaries such as Audi and Skoda have also announced that more than 3 million of their cars were fitted with the same software.
VW must pay up to 18 billion dollars, which is more than the company’s entire operating profit for 2014. VW provides more than 270,000 jobs in Germany, as well as 600,000 around the world.
It’s also a major contributor in German exports. However, the crisis has erased more than one third of the company’s market value.
Also, the Volkswagen Group announced that global sales decreased by 4.5 percent in the first 11 months of the year.