2015 shaping up as the year for even more quantitative easing

IF 2014 goes down in history as the year in which markets had to grapple with the US Federal Reserve's tapering of its "quantitative easing" or QE stimulus, 2015 is shaping up as a year when QE looks like returning with a vengeance.

Even as the United States recovers and appears to be able to cope without support from the Fed's QE, Europe is slipping backwards and looks like it is in desperate need of even more QE than the European Central Bank (ECB) has so far committed. Japan which is officially in a recession in October announced a second round of QE to complement the first announced in April 2013 while China, too, is suffering a drastic slowdown which is casting serious doubt on its stated goal of achieving at least 8 per cent annual growth. The China stock market may have exploded in recent weeks, but this is largely attributable to the new Shanghai-Hong Kong connect rather than an upswing in the economy; instead, experts expect more rounds of QE are in the offing.

The biggest problem is the ever-weakening oil prices and their impact on countries already struggling with disinflation or possibly even deflation. Europe is likely to be the worst affected as oil prices slide. The continent was already thought to be in a serious disinflationary spiral before the oil plunge of the past month. What is worrying is that although the ECB will likely have to unleash more rounds of QE, they may not have their intended effect.