Major Economies: Global Outlook Deteriorates Amid Weaker Prospects for Euro Area and Japan

The global GDP growth outlook deteriorated this month; FocusEconomics panelists now expect the global economy to expand 2.7% in 2014, which is down 0.1 percentage points from last month’s projection. The deterioration was driven by lower growth projections for the BRIC economies, the Euro area and Japan, which more than offset an upward revision to the United Kingdom’s forecast. Panelists also cut their projections for next year by 0.1 percentage points and now expect the global economy to grow 3.3%.

US Economy Improves Steadily, Fed Plans to Taper Asset Purchases

In the United States, recent data suggest that the economy is continuing to make steady progress. In August, the ISM manufacturing index rose to the highest point in three and a half years and retail sales grew at the fastest pace in four months. While on a negative note payrolls growth slowed in August, the unemployment rate did inch down slightly to 6.1%. Against this backdrop, panelists kept their 2014 projections for the United States unchanged at the previous month’s 2.1% and they see the economy accelerating to 3.0% growth in 2015, which is also in line with last month’s forecast. Meanwhile, the Fed announced at its policy meeting on 16–17 September that it would continue to taper its asset purchases and that the program would come to an end in October. Speculation continues regarding when the Fed will raise interest rates. Although no exact date was given, an increase in the Fed’s interest rate projections for next year hints at the fact that the Fed seems to be preparing for a faster-than-expected hike sometime in the second half of 2015.

ECB’s Strives to Improve Europe’s Economic Situation

In the Eurozone, the ECB took center stage this month when it launched a program to purchase large scale asset backed securities (ABS) at its latest meeting on 4 mber. The move is aimed at fostering credit growth, propping up inflation and reviving the ailing Eurozone economy. The decision comes against the backdrop of a disappointing economic scenario: detailed GDP data confirmed that 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.

Euro Area Economy Expected to Grow Just 0.8% in 2014

A rebound in industrial production in July offered a tiny glimmer of hope, but 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) deteriorated in September. Against this backdrop, panelists cut their growth projections for the Eurozone economy for a second consecutive month. FocusEconomics Consensus Forecast panelists expect the Euro area economy to expand 0.8% in 2014, which is down 0.1 percentage points from last month’s forecast. Panelists also cut their growth projections for 2015 and currently expect the Eurozone economy to expand 1.3% next year.

Abe Makes Moves to Revamp Cabinet in Light of Recent Economic Data

In Japan, Prime Minister Shinzo Abe announced changes to both the Cabinet and top positions in the Liberal Democratic Party on 3 September. Abe reshuffled 12 of the 18 Cabinet members, but left key economic officials in their posts, thus signaling his commitment to push his reform agenda ahead. This move is also intended to revamp the image of Abe’s Cabinet, which was negatively affected by recent disappointing economic data. GDP contracted 7.1% in Q2 over the previous quarter in seasonally adjusted annualized terms, while the manufacturing PMI ticked down in September. Panelists cut their growth projections for Japan as concerns linger that the stimulus provided by the Abenomics policies may be waning. FocusEconomics Consensus Forecast panelists expect the Japanese economy to grow 1.1%, which is 0.2 percentage points below last month’s projection. Next year, the Japanese economy is expected to grow 1.2%, which is unchanged from the previous month’s projection.

BRIC Economics Growth Projection Cut on Brazil Outlook

FocusEconomics panelists also cut their 2014 GDP projections for the BRIC countries. They now expect the BRIC economies to grow 5.3%, which is down 0.1 percentage points from last month’s projection. The downward revision stemmed particularly from lower growth projections for Brazil, where the outlook was revised down by 0.5 percentage points. Panelists made a cut to their projections for Russia, where the outlook was revised down by 0.2 percentage points. Russia continues to feel the pressure of its conflict with Ukraine. While the 5 September ceasefire agreement between Ukraine and the pro-Russia separatists contributed to subduing tensions, pressure on the Russian economy remains as the Western economies have continued to widen the reach of their sanctions. In 2015, the BRIC economies are expected to expand 5.6%, which is down 0.1 percentage points from last month’s estimate.

2014 Global Inflation Prospects Stable

Regarding price developments, the global inflation outlook remained unchanged this month as inflation projections were stable in the majority of the countries surveyed. FocusEconomics Consensus Forecast panelists expect global inflation of 3.1% in 2014, which is unchanged from last month’s projection. For 2015, panelists also see inflation at 3.1%, which is up 0.1 percentage points from last month’s projection.

 Note: This is an excerpt from the FocusEconomics Consensus Forecast Major Economies –October 2014, published September 30, 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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