Overall Global Economy to See 3.3% Growth in 2014.
IHS Top10 Predictions foresees an end to “wallowing in an economic soft patch.”
After wallowing in an economic “soft patch” for the past two years, the global economy is likely to emerge in 2014 with modest growth of 3.3 percent compared with 2.5 percent this year, according to a forecast from Nariman Behravesh, chief economist of IHS (NYSE:IHS), the global leader in information and analytics.
“The easing of the twin headwinds of private sector de-leveraging and public sector austerity will bolster the improved outlook, especially for the developed economies,” Behravesh says. “Many emerging economies will also likely enjoy stronger growth in 2014, pulled along by export-led growth to the United States, Europe and China. That said, the global growth rebound is likely to be quite modest.” — Nariman Behravesh, chief economist of IHS (NYSE:IHS)
The global growth outlook for 2014 is the summary forecast in Behravesh’s annual Top10 Economic Predictions, which were released this week.
The U.S. economy is forecast to slowly pick up speed. The drag from fiscal policy will be less, allowing underlying strengths in the economy — such as housing, the ripple effects of the boom in unconventional oil and gas production, steady growth of consumer spending, and an uptick in capital spending to become more visible, resulting in growth of 2.6 percent in 2014, compared against 1.7 percent in 2013.
Despite signs of weakness, the European recovery will continue, but at a very sluggish pace. Forecast growth of 0.8 percent will be supported by very accommodating monetary policy, stabilizing labor markets, less emphasis on austerity, improved spending power, better competitiveness in peripheral countries and greater confidence in Eurozone politicians to manage their sovereign debt crisis. Germany and the United Kingdom will grow faster than they did in 2013; Greece, Italy and Spain will struggle to attain positive growth.
IHS expects China’s growth to inch up from 7.8 percent in 2013 to 8.0 percent in 2014. The government is expected to apply additional moderate stimulus if growth dips below 7.5 percent and stronger stimulus if it goes below 7.0 percent as China looks ahead to internal problems such as an aging population and the consequences of rapid credit growth, including a new housing bubble and rising consumer debt levels.
Other Top 10 predictions include:
- Emerging markets will perform a little better with real GDP growth strengthening to 5.4 percent in 2014 from 4.7 percent in 2013. U.S. and Chinese growth will be stronger, and the Eurozone will no longer be a drag, resulting in emerging market exports becoming a source of growth.
- Unemployment rates in advanced economies will remain high dropping only to 7.9 percent in 2014 from 8.1 percent in 2013. Improved productivity will erode demand for labor, and aggressive cost-cutting will continue unabated. In the U.S., the unemployment rate is forecast to decline from 7.5 percent in 2013 to 6.6 percent in 2014.
- Commodity prices will go nowhere in 2014, as they did in 2013, as gradually strengthening demand is matched by higher production and ample inventories. Inflation will remain a low-level threat.
- The Federal Reserve will begin scaling back stimulus, while other central banks will likely wait or provide more stimulus. The Fed is likely to start trimming its bond purchases no later than January 2014. The Bank of England is expected to raise interest rates in the second half of 2014. However, because of continued weak growth, the European Central Bank may engage in another round of Long-Term Refinancing Operations.
- Fiscal headwinds will ease, particularly in the U.S. (thanks to the recent budget accord) and Europe. The U.S. federal budget deficit is expected to be unchanged from 2013 to 2014 at just under $700 billion, following a sharp drop from about $1.3 trillion in 2011. Easing fiscal pressure will also be evident in Europe and many of the Eurozone’s crisis economies will be given a little more time to meet their fiscal targets.
- The U.S. dollar will strengthen against most currencies because U.S. growth will improve, growth differentials with other advanced economies will be sizable, and the Fed is likely to remove stimulus sooner than most other major central banks.
- There will be more upside risk than downside risk for the global economy due to stronger than anticipated growth in the U.S., U.K. and Germany, combined with better emerging markets performance in China, India and Brazil will likely surprise to the upside; instability in the Middle East and North Africa, additional fiscal drag, and disappointing news from emerging markets will persist on the downside.
For 2013, IHS forecast that global growth would hold steady at 2.6 percent and it stabilized at around 2.5 percent. Nine-out-of-ten predictions for 2013 were on the mark.