The outlook for the global economy deteriorated for a third consecutive month. Lower growth prospects for the United States and the BRIC economies more than offset an upward revision for Japan. FocusEconomics panellists currently expect the global economy to expand 2.5% in 2013, which is down 0.1 percentage points from last month’s projection. Forecasters also cut their projections for next year; they now see the global economy expanding 3.4%, which is down 0.1 percentage points from last month’s forecast.
Prospects of QE tapering continue to make headlines in the United States
In the United States, the debate regarding the withdrawal of the monetary stimulus by the Federal Reserve continues to make the headlines. In his testimony before Congress on 17 July, Federal Reserve Chairman Ben Bernanke emphasized that the Fed’s bond buying strategy is not on a pre-determined course and that potential tapering of the quantitative easing (QE) program later this year depends on overall performance of the economy. Recent indicators paint a mixed picture of the U.S. economy. Despite a rise in payrolls, the unemployment rate remained stable at 7.6% in June. Meanwhile, retail sales in June rose 0.4% over the previous month, supporting the upward trend observed since March 2013. Amid the headwinds from the fiscal drag and the upcoming QE tapering, FocusEconomics panellists cut their projections by 0.1 percentage points compared to last month and currently expect the U.S. economy to grow 1.8% in 2013. The panel expects the economy to grow 2.7% in 2014, which is unchanged from last month’s forecast.
Projections for the Euro area stabilize after four consecutive downward revisions
The outlook for the Euro area finally stabilized this month after four consecutive downward revisions. Panellists see the Eurozone contracting 0.6% in 2013, unchanged from last month’s estimate. Panellists expect only a mild recovery for 2014, when the economy is expected to grow a soft 0.9%. While recent economic indicators were generally disappointing, the Markit Flash Eurozone PMI moved into expansionary territory in July. The result suggests that the Euro area economy could pull out of the recession in Q3. Meanwhile, at the monetary policy meeting on 4 July, European Central Bank (ECB) President Mario Draghi announced that the ECB will keep interest rates, “at present or lower levels for an extended period of time.” The announcement marked a milestone in the Eurozone’s monetary policy, as this is the first time the ECB has ever given forward guidance.
Abe wins control of both chambers of parliament
In Japan, Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) and its coalition partner New Komeito won the Upper House elections by a landslide on 21 July. With this victory, the Prime Minister has control over both chambers of the National Diet for the first time since 1989. With a comfortable majority in both chambers, Abe will be able to push through his long-announced “third arrow” of structural reforms. Against this backdrop, panellists raised their GDP forecast for Japan for the seventh consecutive month. FocusEconomics panellists currently expect the Japanese economy to grow 1.7% in 2013, which is up 0.1 percentage points from last month’s projection. In 2014, the Japanese economy is expected to grow 1.6%, which is also up 0.1 percentage points from last month’s forecast.
Downward revision for BRIC countries
FocusEconomics panellists cut their 2013 projections for the BRIC countries for a fifth consecutive month, amid downward revisions across the board. The panel currently expects the group of emerging economies to expand 5.9%, which is down 0.1 percentage points from last month’s projection. In particular, forecasters shaved off 0.3 percentage points from the outlook for Brazil, while cutting prospects for both China and India by 0.2 percentage points. Finally, the outlook for Russia was cut by 0.1 percentage points. In 2014, the BRIC economies are projected to expand 6.2%, which is down 0.2 percentage points from last month’s estimate.
Inflation expectations stable
Regarding price developments, panellists kept their global inflation expectations unchanged amid stable forecasts for the majority of the countries surveyed. FocusEconomics Consensus Forecast panellists expect global inflation to reach 2.6% in 2013, which is unchanged from last month’s projections. For 2014, panellists see inflation picking up to 2.9%, which is down 0.1 percentage points from last month’s forecast.Note: This is an excerpt from the FocusEconomics Consensus Forecast Major Economies –August 2013, published July 30th, 2013. The full report (114 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 (links to landing page).