Major Economies: Regional Outlook Stable for the 4th Consecutive Month

The global GDP growth outlook stabilized this month following three consecutive downward revisions. FocusEconomics panelists expect the global economy to expand 2.8% in 2014, which is unchanged over last month’s projection. A more optimistic outlook for Canada and the United States offset deteriorations in the outlook for the Euro area and Japan. Panelists kept their forecasts for next year unchanged for the fourth consecutive month; they still see the global economy picking up the pace and expanding 3.4%.

Europe and the U.S. Give Russia Further Sanction Ultimatum

The confrontation between Russia and the West continues to cloud the global outlook. At their most recent meeting on 30 August, European leaders gave Russia one week to scale back intervention in Ukraine or face further sanctions as allegations are mounting that Russian forces illegally crossed the Ukrainian border to support pro-Russian separatists—allegations that Russian authorities have roundly denied. United States President Barack Obama also threatened that he would tighten sanctions further while denying the possibility of direct military action. Cease-fire talks that took place in Minsk between Russia, Ukraine and pro-Russian rebels on 1 September proved to be inconclusive yet again.

U.S. Economy Surprises with Strong Q2 GDP Data, Growth Forecasts Upgraded

Meanwhile, in the United States, revised Q2 GDP data point to stronger growth than previously estimated. The economy expanded 4.2% in seasonally-adjusted annualized terms, up from an early estimate of 4.0%. The result confirms that the recovery in the U.S. economy is back on track following the dismal first quarter result. Additional data corroborated this positive picture, with the ISM manufacturing index picking up to the highest level in three years in July and payrolls increasing by more than 200,000 for the sixth consecutive month.

The positive developments were reflected in an upgrade to the U.S. growth projections for this year. Panelists currently expect the American economy to expand 2.1%, which is up 0.2 percentage points from what they expected last month. For next year, panelists see the economy expanding 3.0%, which is down 0.1 percentage points from last month’s forecast. Meanwhile, speculation continues regarding when the Federal Reserve will hike interest rates. At the annual symposium of central bankers at Jackson Hole that took place on 20-21 August, Janet Yellen failed to offer clarity regarding an interest rate increase, although minutes from the most recent Fed monetary policy meeting show growing support for an earlier hike.

Eurozone Economic Recovery May be Faltering

Panelists cut their growth projections for the Eurozone this month following two months of stable projections. FocusEconomics Consensus Forecast panelists expect the Euro area economy to expand 0.9% in 2014, which is down 0.2 percentage points from last month’s forecast. Panelists left their projection for next year’s growth unchanged at last month’s 1.5%. This month’s downgrade to the Euro area outlook came on the back of a dismal Q2 GDP release. The Euro area economy recorded flat growth over the previous quarter in Q2. The result raises concerns that the already feeble recovery in the region may be faltering as the economy ground to a halt even before any impact was felt from the recent tit-for-tat sanction escalation with Russia over Ukraine.

Survey-based Indicators Show Difficult Months Ahead for Eurozone

Additional indicator releases corroborated the bleak picture presented in the Eurozone GDP data, as industrial output contracted in June for a second consecutive month and the unemployment rate continued to hover close to the region’s all-time high of 12.0% in July. Survey-based indicators suggest that the region will face a difficult period in the months ahead, as both the flash estimate of the Markit Composite PMI and the Eurozone Economic Sentiment Indicator (ESI) slowed to the lowest levels since the beginning of the year. Against this backdrop, expectations are mounting that the ECB may announce further accommodative measures—in particular large-scale purchases of public and private assets—as early as the next monetary policy meeting scheduled for 4 September.

Japan Forecast Cut Following Dismal Q2 GDP Data

Panelists also cut their projections for Japan. FocusEconomics Consensus Forecast panelists expect the Japanese economy to grow 1.3%, which is 0.2 percentage points below last month’s projection. Next year, the Japanese economy is seen growing 1.2%, which is unchanged from the previous month’s projection. The downward revision stemmed from the release of Q2 GDP data, which showed that the Japanese economy dropped a hefty 6.8% in seasonally-adjusted annualized terms. The contraction contrasted the 6.1% expansion recorded in Q1 and was mainly the result of a pullback in demand following the sales tax increase that was implemented in April.

Abe Takes Action to Rekindle Growth

More recent data provide a more optimistic picture, suggesting that the Japanese economy may have recovered some ground. The PMI picked up in August and consumer confidence hit an eight-month high in July. In addition, exports rebounded in July. On the political front, Prime Minister Shinzo Abe confirmed that he would reshuffle his cabinet on 3 September in an effort to tighten his grip on the government amid rising concerns over his ability to rekindle Japan’s economic growth.

Global Inflation Outlook Holds Steady

Regarding price developments, the global inflation outlook was unchanged this month. Higher inflation projections for Japan and Canada offset downward revisions to the United Kingdom and the Euro area. FocusEconomics Consensus Forecast panelists expect global inflation of 3.1% in 2014, which is unchanged from last month’s projection. 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 –September 2014, published September 2nd, 2014. The full report (129 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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