The outlook for the global economy remained unchanged for the fourth month in a row. Deteriorating prospects for the Euro area and the BRIC economies were offset by upward revisions for Japan and the United States. FocusEconomics panellists currently expect the global economy to expand 2.8% in 2013. However, panellists cut their growth expectations for 2014 and now see the global economy growing 3.5%, which is down 0.1 percentage points from last month’s projection.
Concerns over sequester ease as forecasts for the USA improve
The outlook for the United States improved this month, as panellists are less concerned regarding the negative effects that the sequester will have on the U.S. economy. GDP data for the first quarter pointed to an acceleration, with growth expanding at a seasonally adjusted annualised rate of 2.5% (Q4 2012:+0.4% saar), despite the start of automatic spending cuts on 1 March. However, other indicators provided mixed signals. Retail sales suffered their largest drop in nine months in March. In contrast, both the housing and the labour market continue to show signs of improvement. On the political front, the debt ceiling suspension passed in January will expire on 19 May. The Treasury will still be able to use emergency manoeuvres to pay bills until July or August, after which Congress will be called to raise the debt ceiling once again. Against this backdrop, FocusEconomics Consensus Forecast panellists expect the U.S. economy to grow 2.0% in 2013, which is up 0.1 percentage points from last month’s projection. For 2014, the panel expects the economy to grow 2.7%, which is unchanged from last month’s forecast.
Panellists increasingly confident that Shinzo Abe’s recipe will kick-start the Japanese economy
Prospects for Japan improved for the fourth month in a row, as panellists are increasingly confident that the stimulus programme of Prime Minister Shinzo Abe, flanked by the Central Bank’s aggressive monetary easing, will succeed in kick-starting the ailing Japanese economy. Recent data releases suggest that the economy is already gaining momentum on the back of the Abenomics strategy. Against this backdrop, FocusEconomics panellists raised their 2013 growth projections by 0.1 percentage points and currently expect the Japanese economy to grow 1.2% in 2013, already doubling the 0.6% expansion forecasted at the beginning of this year. The outlook for 2014 was unchanged at last month’s 1.4%.
Euro area growth outlook cut for the eighth time in nine months
Meanwhile, FocusEconomics panellists cut their growth projections for the Euro area for the eighth time in the last nine months. Panellists lowered their 2013 GDP projections by 0.1 percentage points over the last month and now see the Eurozone contracting 0.4%. Panellists see only a mild rebound for 2014, when growth is expected to rise to a soft 1.0%. Recent indicators continue to paint a negative picture of the Euro area economy. Industrial production remains on an unstoppable downward trend, despite a positive monthly reading in February, while unemployment reached a fresh record high of 12.1% in March. Against this backdrop and amid a favorable inflation scenario, the European Central Bank (ECB) announced a widely expected 25 basis-point rate cut at its 2 May policy meeting. The decision, which brings the main refinancing rate to an unprecedented low of 0.50%, represents the first rate cut since July 2012.
Russia, India and China drive second consecutive downward revision for the BRIC economies
FocusEconomics panellists cut their 2013 projections for the BRIC countries for a second consecutive month. The panel currently expects the group of emerging economies to expand 6.4%, which is down 0.1 percentage points from last month’s projection. The downward revision was driven by lower growth forecasts for Russia, India and China, whereas prospects for Brazil remained stable. In 2014, the BRIC economies are set to expand 6.7%, which is unchanged from last month’s forecast.
Global inflation prospects experience downward revision
Finally, panellists downgraded their global inflation expectations, amid a downward revision for the United States and stable inflation prospects for the remaining economies. FocusEconomics Consensus Forecast panellists expect inflation to reach 2.8% in 2013, which is down 0.1 percentage points from last month’s projections. For 2014, panellists see inflation picking up to 3.1%, which is unchanged from last month’s forecast.Note: This is an excerpt from the FocusEconomics Consensus Forecast Major Economies –May 2013, published May 7th, 2013. The full report (120 pages, covering the G7 economies and the Eurozone plus an overview of the BRIC economies (Brazil, Russia, India and China) is available for immediate download at the FocusEconomics Online Store). For more information and a free sample of the report please visit our website.