The 2014 global economic outlook improved for the first time in four months. The result was driven by upward revisions to the outlook for the United States and Canada. FocusEconomics panelists expect the global economy to expand 3.3% in 2014, which is up 0.1 percentage points from last month’s projection. The economy is expected to have expanded 2.5% in 2013. Next year, panelists see the global economy picking up slightly over 2014 and expanding 3.5%, which is unchanged from last month’s forecast.
The United States Federal Reserve, taking stock of recent improvements in the economy, is continuing to wind down its asset purchase program. At its policy meeting on 28-29 January, the Federal Open Market Committee (FOMC) announced a cumulative USD 10 billion reduction in its monthly purchases of long-term Treasuries and mortgage-backed securities. This was in line with the decision taken at the meeting in December. The FMOC unanimously decided to continue the tapering; this was the first policy meeting since June 2011 where there was no dissent.
Panelists’ outlook for the U.S. economy more positive
Meanwhile, recent GDP figures for the US provide a glimmer of optimism. GDP expanded at a seasonally adjusted annualized rate (SAAR) of 3.2% in Q4. The result, which marked a deceleration over the revised 4.1% growth recorded in Q3, was driven by strong private consumption, investment and exports. This data quelled fears that the government shutdown and the fight over the debt ceiling that occurred at the end 2013 had a strong impact the economy. Recent data paint a mixed picture regarding the strength of the economic recovery. In December, growth in payrolls decelerated, although the unemployment rate did drop to 6.7%. In the same month, retail sales inched down, but consumer confidence picked back up. Housing prices continued to rise on an annual basis in November, while the overall pace is slowing significantly.
Against this backdrop, FocusEconomics panelists expect the pace of the U.S. economy to accelerate from an estimated 1.9% expansion in 2013 and to grow 2.9% in 2014, which is up 0.2 percentage points over last month’s projection. The drag from higher taxes and federal spending cuts that held back the economy last year should wind down over the course of 2014 and contribute to the expansion. The panel expects the economy to grow 3.0% in 2015, which is also up 0.1 percentage points compared to last month.
Positive outlook for the Euro Area, but recovery remains fragile
The Euro area’s recovery remains fraught with uncertainties although the latest data paint a moderately positive picture for the economy. Industrial production expanded 1.8% over the previous month in November, which contrasted the 0.8% drop recorded in October and marked the strongest expansion in three and a half years. Despite the ongoing though gradual improvement in economic activity, unemployment remains at worryingly-high levels. In December, unemployment was unchanged at November’s 12.0%. Survey-based indicators point to continued improvement going forward. In January, the economic sentiment indicator released by the European Commission inched up to 100.9 points from 100.4 points in December, marking the highest result since July 2011. In addition, the Markit Manufacturing Purchasing Managers’ Index (PMI) rose from 52.7 in December to a 32-month high in January, reaching 54.0. Going forward, the continued slowdown in inflation threatens to cripple the incipient recovery.
The European Central Bank kept the refinancing rate unchanged at the record low of 0.25% and at its latest meeting on 9 January ECB President Mario Draghi emphasized that monetary authorities, “remain determined to maintain the high degree of monetary accommodation and to take further decisive action if required.” According to analysts, the statement’s phrasing suggests that the ECB is ready to step up in the case of a further slowdown in inflation or if the moderation turns into outright deflation. Against this backdrop, FocusEconomics Consensus Forecast panelists expect the region’s economy to recover from the 0.4% contraction estimated for 2013 and to expand 1.0% in 2014, which is unchanged over last month’s forecast. Panelists also maintained their projection of a 1.4% expansion for 2015.
Recent indicators show positive outlook for Japanese economy
In Japan, recent data paint a broadly positive outlook for the economy. Industrial production rebounded in December, expanding 1.1% over the previous month in seasonally-adjusted terms. Core machinery orders expanded at the fastest pace in six months in November, rising a seasonally-adjusted 9.3% over the previous month. Consumer sentiment, however, moderated in December, as households are increasingly concerned about the sales tax hike that takes effect in April. The trade balance recorded a record deficit in 2013 mainly due to soaring fuel purchases. In the political arena, Prime Minister Shinzo Abe held strong to his government’s commitment to cut through red tape in order to promote business, although he failed to put forth specific measures yet again.
FocusEconomics panelists expect Japan to grow 1.6% in 2014, which is unchanged over last month’s projection. The result would mark a deceleration over the projected 1.7% expansion in 2013. For 2015, panelists expect the Japanese economy to expand 1.3%.
Outlook for BRIC countries remain stable
FocusEconomics panelists kept their 2014 GDP projections for the BRIC countries unchanged this month. The panel currently expects the group of emerging economies to expand 5.9%, which is unchanged from last month’s projection. In 2015, the BRIC economies are expected to expand 6.0%, which is down 0.1 percentage points from last month’s estimate.
2014 global inflation forecast holds steady
Regarding global price developments, FocusEconomics Consensus Forecast panelists kept their projection for 2014 global inflation unchanged compared to last month; panelists expect inflation to reach 2.9% in 2014, following an estimated 2.7% inflation for 2013. For 2015, panelists see inflation at 3.0%, which is also unchanged from last month’s projection.Note: This is an excerpt from the FocusEconomics Consensus Forecast Major Economies – February 2014, published February 4th, 2014. The full report (121 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.