Global outlook deteriorates: Downward revisions to USA, Euro area and BRICs end four-month streak of stable growth prospects

The outlook for the global economy deteriorated this month following four consecutive periods of stable economic projections. Lower growth prospects for the United States, the Euro area and the BRIC economies more than offset upward revisions for Canada, Japan and the United Kingdom. FocusEconomics panellists currently expect the global economy to expand 2.7% in 2013, which is down 0.1 percentage points from last month’s projection. For 2014, panellists left their projections unchanged at last month’s 3.5%.

Major Economies

Fiscal adjustment uncertain effects weigh on United States’ growth prospects

The outlook for the United States deteriorated this month, as uncertainty surrounding the effects of the fiscal adjustment is weighing on growth prospects for this year. Following a revised 2.4% expansion in Q1, the economy shows now mixed signals. Retail sales rebounded in April and consumer confidence hit its highest level in over five years in May, while housing prices recorded the largest annual gain in seven years in March. However, the ISM manufacturing index fell into contraction territory in May to reach the lowest level in almost four years, which does not bode well for economic activity in the coming months. Against this backdrop, FocusEconomics Consensus Forecast panellists expect the U.S. economy to grow 1.9% in 2013, which is down 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.

Prospects improve for the 5th consecutive month as financial markets’ jitters spark concerns on Abenomics

Prospects for Japan improved for the fifth consecutive month, as confidence on the success of Abenomics remains high. FocusEconomics panellists raised their 2013 growth projections by 0.2 percentage points and currently expect the Japanese economy to grow 1.4% in 2013, which more than doubles the 0.6% expansion forecasted at the beginning of the year. The outlook for 2014 was also raised by 0.1 percentage points to the current 1.5%. That said, Abenomics also entails downside risks, as a recent spike in bond yields sparked concerns that, if the Central Bank finally succeeds in reviving inflation, this will add even more pressure on the country’s already massive debt burden. Meanwhile, Prime Minister Shinzo Abe vowed to unveil his growth strategy – the so-called third arrow – before the 17-18 June G-7 meeting.

Major Economies

by the monnie

Euro area remains mired in recession while European Commission extends deadlines on deficit targets

Meanwhile, FocusEconomics panellists cut their growth projections for the Euro area for the ninth time in the last 10 months. Panellists lowered their 2013 GDP projections by 0.1 percentage points over the last month and now see the Eurozone contracting 0.5%. Panellists see only a mild rebound for 2014, when growth is expected to rise to a soft 0.9%. Recent indicators point to continued weakness in the Euro area economy. GDP contracted 0.2% in the first quarter of 2013, which marks a sixth consecutive decline in economic activity, the longest recession in the history of the Eurozone. Moreover, the unemployment rate reached a new Euro area record-high in April (12.2%). Despite the weak economic momentum, tensions in financial markets remain subdued. Benefiting from the more favourable scenario, on 29 May, the European Commission decided to extend the deadline on budget deficit goals to various countries in the region, most notably Spain, France and the Netherlands. At the same time, the European Commission ratified Italy’s exit from the Excessive Deficit Procedure.

Lower prospects for Brazil, India and China prompt downward revision for BRIC economies

FocusEconomics panellists cut their 2013 projections for the BRIC countries for a third consecutive month. The panel currently expects the group of emerging economies to expand 6.3%, which is down 0.1 percentage points from last month’s projection. The downward revision was driven by lower growth forecasts for Brazil, India and China, whereas prospects for Russia remained stable. In 2014, the BRIC economies are set to expand 6.6%, which is also down 0.1 percentage points from last month’s estimate.

Global inflation expectations decline

Finally, panellists lowered their global inflation expectations, amid downward revisions almost across the board. FocusEconomics Consensus Forecast panellists expect inflation to reach 2.7% in 2013, which is down 0.1 percentage points from last month’s projections. For 2014, panellists see inflation picking up to 3.0%, which is also down 0.1 percentage points from last month’s forecast.

Note: This is an excerpt from the FocusEconomics Consensus Forecast Major Economies –June 2013, published June 4th, 2013. The full report (122 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.

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