Economic Growth in 2014: A Global Survey
Global economic growth should improve modestly after struggling to gain traction over the past two years. The last two quarters of 2013 saw strengthened global growth, which spurred private investment and a reduction in public sector austerity that will likely continue.
Key to this upswing is the continuing recovery of the U.S. economy and the eurozone, which have turned the corner on the recession. This is fuelling growth in the emerging economies through increased exports.
With continuing accommodative monetary policy in the U.S. and other countries, conditions have improved. There are downside risks and fragility in the global recovery, so expect surprises – but overall, global GDP should achieve growth of 3.3 percent to 3.7 percent in 2014, up from less than 3 percent in 2013. It should be followed by further modest growth in 2015.
U.S. Economy Poised for Growth
Although the U.S. economy is not back to normal, its fundamentals are positive. The political headwinds that shaved off about 1 percent of GDP in 2013 decreased with a congressional budget deal in December. Look for growth of 2.5 percent to 3 percent in 2014, and perhaps even higher.
Eurozone Slowly Recovering
Economic conditions in the eurozone are also improving, although there are still signs of weakness. Recovery will be uneven, with the northern countries and the U.K. seeing stable growth and the southern countries, such as Spain, Italy, Greece, struggling to stay in positive territory.
Debt, both public and private, remains high and bank balance sheets are fragile. The European Central Bank needs further reforms to strengthen the system and revive credit growth and confidence. Unemployment remains uncomfortably high, and the risk of deflation remains. However, look for growth of around 1 percent in the region as a whole, with continued slow growth into 2015.
Japan’s Flat Growth Continues
The world’s third-largest economy will putter along with growth of around 1 percent to 1.4 percent, which will likely slow a bit in 2015. The government’s economic stimulus has had limited effect and Japan remains burdened with large deficits and debt.
Energy costs remain high, and there will be significant opposition to re-starting the country’s nuclear power plants, which have been offline since the March 2011 meltdown at the Fukushima facility. Japan is also moving to develop a new national security strategy in the face of China’s rise as a greater economic and military power. Wages, employment and demographic issues will continue to cause social unrest, Japanese-style.
Emerging Markets Rebound Modestly
After enjoying rather fast-paced growth over the past decade, the emerging markets are learning that they need to deal with their own political and economic obstacles if they are to experience long-term growth. In the short term, the recovery of the U.S. economy, China’s slowed but continued growth and the EU’s rise out of recession will provide more opportunities for export growth in 2014.
These exports will fuel this sector’s overall growth in 2014 from around 4.7 percent to around 5 percent, with continued growth into 2015. Although the BRICs – Brazil, Russia, India and China – remain important, particularly China, many other emerging markets are also undergoing rapid growth.
Although each is small in terms of contribution to global output, together they constitute a new engine of continued growth, and the emerging markets are on the verge of accounting for 50 percent of global GDP.
China Returns to Higher Growth
China’s economy should continue to grow, fuelled by the recovering global economy and some mini-stimulus efforts on the part of the central government. Of most importance to watch is how well the new government under President Xi Jinping can implement the ambitious social, economic and political reforms confirmed in the November 2013 Plenary Session.
To not get caught in the “middle-income trap,” China must allow market forces to play a much stronger role and evolve from an export-led economy to a consumer economy. The result of this multi-year process has huge implications for the mid-term global economy, but in the next two or three years China should see economic growth of between 7 percent and 8 percent.