By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
At the beginning of 2014, many people were optimistic about the world economy. For the fifth straight year, it had seemed safe to declare the lingering effects of the 2008 financial crisis over and done with. This time is different: 2015 is likely to begin in a merited atmosphere of gloom.
The Central Bank of Russia was successful for about two hours. Its overnight decision to hike the main interest rate from 10.5 percent to 17 percent initially shocked markets enough to arrest the rouble’s fall after the currency sank almost 12 percent on Dec. 15. But the Russian currency quickly resumed its slide, smashing record lows – as if the central bank hadn’t moved at all. That leaves policymakers with few sensible short-term options. Further out, only an end to the Ukrainian stand-off and related Western sanctions or sharply higher oil prices could soothe markets. Neither is likely to happen soon.
The rout in oil will have wider reaching consequences yet.
The Organization of Petroleum Exporting Countries’ decision not to cut production amid slowing demand coupled with large increases in U.S. oil output has skimmed some $40 off a barrel of oil inside of five months.
The Dow Jones Industrial Average hit a record high for the third straight day this week. The S&P 500, since breaking the 2,000 level on Oct. 31 has since remained above that level.
One day ahead of Friday’s key U.S. jobs report, markets will turn their attention to the European Central Bank, which is currently engaging in what strategist Rich Bernstein of Richard Bernstein Advisors calls a quest to become “the worst central bank in all of history.”