The global GDP growth outlook deteriorated for the second month in a row. The deterioration stemmed from lower projections for Canada, Japan and the BRIC countries, which overshadowed improvements in the United Kingdom and the Euro area. FocusEconomics panelists expect the global economy to expand 3.1% in 2014, which is down 0.1 percentage points from last month’s projection. Next year, panelists see the global economy picking up the pace and expanding 3.5%, which is unchanged from last month’s forecast.
Downward revisions in key emerging economies prompt cut in global growth perspectives
Recent turmoil in emerging markets amid geopolitical tensions in Ukraine plus prospects of a slowdown in key emerging economies largely affected the global outlook. In China, authorities are facing the challenge of supporting economic growth—which is slowing down, as suggested by an array of disappointing beginning-of-the-year releases—while at the same time keeping a lid on excessive credit growth, which continues to drive a sizable part of the economy. Although Chinese officials have reiterated the 7.5% growth target for this year, they have also stated that the target would be flexible, signaling that authorities could tolerate lower growth rates. Within this setting, panelists revised down their growth expectations for this year by 0.1 percentage points and now expect China to expand 7.4%.
In Russia, the situation remains tense following the referendum and subsequent annexation of the Crimean Peninsula. The economy remains weak and prospects of escalating sanctions are weighing on the outlook for the coming months. Within this setting, panelists revised down growth prospects for Russia by 0.3 percentage points and currently expect the economy to expand 1.9% in 2014. For the BRIC economies as a whole, the panel cut their 2014 growth projection by 0.2 percentage points over last month’s forecast to 5.7%. In 2015, the BRIC economies are expected to expand 5.9%, which is also down 0.1 percentage points from last month’s estimate.
Disappointing growth figures raise concern in Japan
In Japan, concerns are mounting regarding the state of the country’s economic recovery and the success of Abenomics as a sales-tax hike looms on the April horizon. Economic growth in the last quarter of 2013 turned out to be weaker than initially reported. Meanwhile, recent data paint a mixed picture of the economy. In February, industrial production recorded the largest drop in eight months, while consumer confidence plunged to the lowest level in over two years. Conversely, machinery orders rebounded to a 10-month high in January and the trade balance deficit narrowed in February on weaker import growth. FocusEconomics panelists expect Japan to grow 1.3% this year, which is down 0.2 percentage points from last month’s projection and marks the second downward revision to the country’s outlook in the last three months. For 2015, panelists also expect the Japanese economy to expand 1.3%, which is unchanged from last month’s forecast.
U.S. economy emerges from soft patch as Fed revamps forward guidance
Recent data for the United States suggest that the economy has emerged from the winter soft patch. Growth in payrolls accelerated by more than expected in February, although the unemployment rate did tick up to 6.7%. In the same month, retail sales rebounded to growth after registering declines that were related to winter weather in the previous months. Moreover, March consumer confidence surged to the highest point since January 2008. Meanwhile, the Fed announced at its policy meeting on 19–20 March that it would continue to reduce the pace of its asset purchase program. In addition, the Fed revamped its forward guidance, stating that future decisions to hike the federal funds target rate would depend on the assessment of a wide range of indicators and not just the unemployment rate. In the press conference that followed the announcement, Fed Chair Janet Yellen vaguely suggested that an increase in interest rates could take place in, “something on the order of around 6 months,” after the conclusion of the bond buying program, which is on track to end in December 2014. Taking into account the current situation, FocusEconomics panelists expect the U.S. economy to expand 2.8% in 2014, which is unchanged over last month’s projection. The panel expects the economy to grow 3.0% in 2015, which is also unchanged compared to last month.
Recovery in the Euro area continues to move ahead
In the Euro area, recent figures confirm that, although the economic recovery is weak, it is continuing to move ahead. Tensions in Ukraine and Russia do not seem to have had a notable impact on the region. Detailed GDP figures confirm that the Euro area economy accelerated at the end of last year. In Q4 2013, GDP expanded a seasonally-adjusted 0.3% over the previous quarter, which was up from the 0.1% expansion recorded in Q3 and marked a third consecutive expansion. Weaknesses in the economy persist, however, as is suggested by the second consecutive contraction in industrial production that was recorded in January. Survey-based indicators broadly point to continued improvement going forward. The European Commission’s economic sentiment indicator rose from 101.2 points in February to 102.4 points in March. News on the region was broadly positive throughout the course of the month. On 20 March, the European Parliament and the Euro area member states reached a deal to establish the long-awaited banking union. Meanwhile, the Greek government and international lenders finally put an end to seven months of intense negotiations when they came to an agreement on the fifth review of the country’s second bailout. The deal paves the way for much-needed funds from the rescue package to be disbursed once the IMF and the Eurozone financial minister sign off on the review. Taking into account the slight overall improvement in the Euro area, FocusEconomics Consensus Forecast panelists expect the region’s economy to expand 1.1% in 2014, which is up 0.1 percentage points over last month’s forecast. Panelists also upgraded their projection for next year’s growth by 0.1 percentage points to 1.5%.
Global inflation projections remain stable
Regarding global price developments, panelists’ overall global inflation expectations did not change as downward revisions to the United Kingdom and the BRIC economies were offset by upward revisions for Canada and Japan. FocusEconomics Consensus Forecast panelists maintained their projection for 2014 global inflation; they still expect inflation to reach 2.9% in 2014. For 2015, panelists see inflation at 3.0%, which is also in line with last month’s forecast.Note: This is an excerpt from the FocusEconomics Consensus Forecast Major Economies –April 2014, published April 1st, 2014. The full report (123 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.