There were some minor changes to regional/country growth forecasts during October but none of sufficient weight to alter global growth aggregates. The table below shows the latest consensus estimates from a number of leading investment houses for this year and next:
As the year has progressed, global growth forecasts have suffered a continuous process of modest downward revision for both this year and next despite some considerable improvement in the outlook for a number of developed economies (DM). The root cause of these lowered estimates is growth that is far slower than previously expected in many emerging countries (EM) and especially China. Disappointingly, this has ensured that hopes for the world economy accelerating to an above-trend growth rate are on hold once again.
US Economy
While much of DM has experienced a significant upturn in economic activity, the US economy has stalled this year and forecasts for next have drifted downwards. Given that the US economy transitioning from recovery to sustainable expansion is key to the upturn in global growth in 2014, further disappointments will be of considerable concern.
The partial government shutdown and debt-ceiling fiascos certainly depressed activity in both September and October, according to official data and lead indicators. How much and for how long are still questions to be answered as delays to data releases have created an uncertain shorter term outlook and, without a doubt, contributed to the Federal Reserve maintaining its pace of bond purchases.
Third-quarter GDP has yet to be released but another insipid report is likely with growth at around a 2% annual rate. Even though most commentators view recent data weakness as transitory, the fourth quarter is already off to a weak-ish start and consensus forecasts have retreated from 2.5% to another pedestrian 2.0%. Hopes remain high for a rebound next year, however, with more positive tailwinds predicted to boost growth.
Eurozone Economy
Latest data from the euro area confirm an improving regional economy but also a recovery that will be both gradual and relatively weak. GDP forecasts for Q3 were little changed over the month and the consensus is expecting 0.1% to 0.2% growth. A tenth higher range is predicted for Q4, but this will still result in an overall 0.3% contraction for the year.
The newsflow from peripheral countries continued to improve and, whether in or out of the rescue programme, all are forecasting positive growth for next year. A sizeable fall in core inflation to 0.8% is also expected to press the ECB to lower interest rates, as the spectre of “deflation” hits media headlines. The ECB is also focusing on a “Comprehensive Assessment” of the banking sector which will come under its Single Supervisory Mechanism a year from now. While this may generate substantive issues along the way, the process should further restore confidence in the financial system.
UK Economy
Preliminary Q3 GDP figures validated earlier signs that a sustained economic upturn is underway in the UK. At 0.8% quarter-on-quarter, or a 3.1% annual rate, the advance was broad-based and the fastest pace of growth in over three years. The services sector, nearly 80% of the economy, continued to lead the recovery and reached a new peak in output even as the whole economy remained some way below the Q1 2008 high.
Latest PMI data suggest no let-up in the pace of advance and the current range for Q4 GDP, 2.0% to 3.5%, may narrow towards the top end. The faster-than-expected growth is also shrinking the government deficit and, with elections only 18 months away, fiscal policy could conceivably become more supportive.
Japan Economy
The Japanese economy lost momentum over the summer months and, in particular, weather-related sluggish private consumption led to some sizeable downward revisions to Q3 GDP forecasts. The consensus is now around 2.0% but most commentators predict a strong rebound in Q4. Over the next few quarters it will be difficult to determine underlying trends, however, as households are likely to front-load spending ahead of the consumption tax hike next April.
Prime Minister Abe’s “third arrow”, the reform programme, is still work in progress and more needs to be done to boost growth. Further corporate tax cuts are expected and it is essential that wage growth accelerates to help achieve sustainable expansion but, as yet, real wages are continuing to fall as inflation picks up.
China Economy
The improvement in Chinese economic newsflow was reflected in a strong GDP rebound. Official figures showed the economy grew by 7.8% y/y while, on a quarterly sequential basis, commentators estimated growth at a 9.0% to 9.5% p.a. rate, following 7.0% or so in Q2. Latest PMI data suggest the upturn may continue into Q4 but at a more modest pace.
The new leadership presents its economic and financial market policies at the 3rd Plenary Session of the CPC Central Committee on 9-12 November. The authorities face a challenging period ahead, therefore as major reform programmes are rolled out. The Premier, Li Keqiang, recently noted, however, that the mainland needs to sustain a 7.2% growth rate to ensure stable employment.
Elsewhere in Asia Pacific/EM, North Asian data continued to improve while that in ASEAN was somewhat mixed. Trade balances outside of India remain well contained, however, and, as in Latin America, growth in Q4 is generally expected to accelerate smartly from a weak Q3.
