Global outlook stable, Russia-Ukraine crisis still source of concern

The global GDP growth outlook stabilized this month following two consecutive downward revisions. An upward revision to the outlook for the Euro area was offset by a downward revision to the BRIC economies. FocusEconomics panelists expect the global economy to expand 3.1% in 2014, which is unchanged from last month’s projection. Next year, panelists see the global economy picking up the pace and expanding 3.4%, which is down 0.1 percentage points from last month’s forecast.

Photo by Jose Luis

Photo by Jose Luis

Political tensions between Russia and Ukraine continue to cloud the global outlook. Following the referendum and subsequent annexation of the Crimean Peninsula, unrest is mounting in the eastern part of Ukraine where pro-Russian activists are engaging in confrontation with Ukrainian forces due to seizure of government and military facilities. Diplomats from Ukraine, Russia, the European Union and the United States negotiated a tentative accord on 17 April in Geneva, which called for an end to all, “violence, intimidation or provocative actions.” Yet hopes of a ceasefire where swiftly shattered when at least three people were killed on 22 April in a shooting at a checkpoint near the city of Slovyansk; Russia and Ukraine traded blame for the attacks.  The Russian army is currently running extensive military drills on the eastern border of Ukraine and fears are mounting that Russia may invade the region. In response to the threat from the Russian military, the United States and the European Union have strengthened their sanctions against Russian companies and government officials.

The escalation of the conflict is weighing heavily on the outlook for the Russian economy, which was already on weak footing when the military crisis began. Panelists revised down growth prospects for Russia by 0.6 percentage points and now expect the economy to expand 1.2% 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 5.6%. In 2015, the BRIC economies are expected to expand 5.9%, which is down 0.1 percentage points from last month’s estimate.

U.S. growth outlook stabilizes for second consecutive month

The United States economy appears to be gaining momentum. Retail sales increased 1.1% over the previous month, which marked an 18-month high. Although the ISM manufacturing index increased only modestly, March’s result marked the second consecutive gain. Meanwhile, growth in payrolls was weaker than expected, yet the unemployment rate held steady at 6.7%. Gradual ongoing improvements in the economy suggest that the Fed will continue to taper its asset purchase program in the coming months. The outlook for the U.S. economy stabilized for a second consecutive month following the downward revision experienced in March. FocusEconomics panelists currently 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.

Stronger growth projected for Euro area in 2014

In the Euro area, recent figures confirm that the recovery is holding steady, although weaknesses do persist. Industrial output expanded 0.2% over the previous month in February, thus recovering from a contraction in December and a flat reading in January. That said, unemployment is still at worryingly-high levels. In February, the unemployment rate remained stable at 11.9% for a fifth consecutive month despite a drop in the number of jobseekers. Survey-based indicators broadly point to continued improvement going forward. The Markit Composite PMI Output Index flash estimate rose from 53.2 in March to 54.0 in April, marking the highest result since May 2011. The news flow over the course of the month was broadly positive, as Greece tapped into international financial markets in April for the first time since the height of the crisis in 2010—dissipating fears of a third bailout—and Spain recorded the fastest GDP expansion in six years. Meanwhile, in France, the Socialist government is trying to regain its popularity ahead of the crucial European elections scheduled for May.

Taking into account the overall improvement in the Euro area, FocusEconomics Consensus Forecast panelists expect the region’s economy to expand 1.2% in 2014, which is up 0.1 percentage points over last month’s forecast. Panelists left their projection for next year’s growth unchanged at last month’s 1.5%.

Disappointing results for Japan´s economy

In Japan, recent data paint a rather negative picture for the economy. In Q1, business sentiment among large manufacturers jumped to the highest level since Q4 2007. However, enterprises expect conditions to worsen in the coming months. In March, consumer confidence fell to the lowest point since August 2011 amid growing pessimism caused by the April tax hike. In the same month, the trade deficit widened as exports posted the weakest growth in a year. In February, machinery orders contracted 8.8%, which greatly contrasted the 10-month-high 13.4% expansion recorded in January. FocusEconomics panelists expect Japan to grow 1.3% this year, which is unchanged from last month’s projection. For 2015, panelists also expect the Japanese economy to expand 1.3%.

Photo by AlisonBowden14

Photo by AlisonBowden14

Global inflation projections remain stable

Regarding global price developments, panelists’ overall global inflation expectations did not change despite downward revisions to the United Kingdom and the Euro area. 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 –May 2014, published April 29th, 2014. The full report (124 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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