After wallowing in an economic “soft patch” for the past two years, the global economy is likely to emerge in 2014 with modest growth of 3,3% compared with 2,5% last year, according to a forecast from Nariman Behravesh, chief economist of HIS.
“The easing of the twin headwinds of private sector de-leveraging and public sector austerity will bolster the improved outlook, especially for the developed economies,” Behravesh says. “Many emerging economies will also likely enjoy stronger growth in 2014, pulled along by export-led growth to the US, Europe and China. That said, the global growth rebound is likely to be quite modest.”
The US economy is forecast to slowly speed up. The drag from fiscal policy will be less, allowing underlying strengths in the economy – such as housing, the ripple effects of the boom in unconventional oil and gas production, steady growth of consumer spending, and an uptick in capital spending – to become more visible, resulting in growth of 2,6% in 2014, compared with 1,7% in 2013.
Despite signs of weakness, the European recovery will continue, but at a very sluggish pace. Forecast growth of 0,8% will be supported by very accommodative monetary policy, stabilising labour markets, less emphasis on austerity, improved spending power, better competitiveness in peripheral countries and greater confidence in Eurozone politicians to manage their sovereign debt crisis.
Germany and the UK will grow faster than they did in 2013; Greece, Italy and Spain will struggle to attain positive growth.
IHS expects China’s growth to inch up from 7,8% in 2013 to 8% this year. The government is expected to apply additional moderate stimulus if growth dips below 7,5% and stronger stimulus if it goes below 7% as China looks ahead to problems of an aging population and the consequences of rapid credit growth, including a new housing bubble and rising debt levels.
Other top predictions include:
* Other emerging markets will also perform a little better, with real GDP growth strengthening to 5,4% in 2014 from 4,7% in 2013. US and Chinese growth will be stronger, and the Eurozone will no longer be a drag, resulting in emerging market exports becoming a source of growth.
* Unemployment rates in advanced economies will remain high, dropping only to 7,9% in 2014 from 8,1% in 2013. Improved productivity will erode demand for labour, and aggressive cost-cutting will continue unabated. In the US, the unemployment rate is forecast to decline from 7,5% in 2013 to 6,6% in 2014.
* Commodity prices will go nowhere in 2014, as they did in 2013, as gradually strengthening demand is matched by higher production and ample inventories. Inflation will remain a low-level threat.
* The Federal Reserve will begin scaling back stimulus, while other central banks will likely wait or provide more stimulus. The Fed is likely to start trimming its bond purchases no later than January 2014. The Bank of England is expected to raise interest rates in the second half of 2014. However, because of continued weak growth, the European Central Bank may engage in another round of Long-Term Refinancing
Operations.
* Fiscal headwinds, particularly in the US (thanks to the recent budget accord) and Europe will ease. The US federal budget deficit is expected to be unchanged from 2013 to 2014 at just under $700-billion, following a sharp drop from about $1,3-trillion in 2011. Easing fiscal pressure will also be evident in Europe and many of the Eurozone’s crisis economies will be given a little more time to meet their fiscal targets.
* The US dollar will strengthen against most currencies because US growth will be strengthening, growth differentials with other advanced economies will be sizable, and the Fed is likely to remove stimulus sooner than most other major central banks.
* There will be more upside risk than downside risk for the global economy: Stronger than anticipated growth in the US, UK and Germany, combined with better emerging markets performance in China, India and Brazil will likely surprise to the upside; instability in the Middle East and North Africa, additional fiscal drag, and disappointing news from emerging markets will persist on the downside.
For 2013, IHS forecast that global growth would hold steady at 2,6% and it stabilised at around 2,5%. Nine out of 10 predictions for 2013 were on the mark.
