Global Economy Watch: May 2014

Has the Eurozone let a good crisis go to waste? Global Economy Watch - May 2014

The Eurozone is on the road to recovery. Richard Boxshall discusses this and the Indian Elections.

The Eurozone is on the road to recovery…

The Eurozone has lagged behind other advanced economies during the economic recovery, but in 2014 we expect it to grow for the first time in three years.

Confidence is strong in a number of areas - stock markets have posted returns of more than 20% over the past year while yields on corporate bonds are also nearing record lows.

…but has the bloc failed to get some good from the crisis?

The return of confidence and growth to the area is welcome, but is it allowing some countries off the hook?

The “ex-crisis” economies of Greece, Portugal, Ireland and Spain are all in the process of implementing painful but necessary structural and fiscal reforms, which is already yielding benefits through significantly boosted competitiveness. This is good news.

However, improving financial conditions in recent months have taken the pressure off other, larger economies such as France and Italy, allowing them to put off similarly painful reforms. This is bad news for the Eurozone as it could be sowing the seeds of sclerotic growth over the next economic cycle.

Inflation is running higher in Japan than in the Eurozone

A more pressing concern for Mario Draghi, ECB governor, is the low and falling inflationary environment in the Eurozone. Draghi is under pressure to engage in QE-style policies similar to those in the UK, US and Japan.

The mechanics of how ECB QE would work are unclear – the ECB itself estimates it might need to buy €1 trillion of assets to boost prices by 0.2-0.8%. By comparison all three QE programmes in the US added around $3 trillion to the global economy.

Why you should follow the Indian elections

In India, elections are under way to decide the new government, with results due in mid-May. The numbers are staggering: India’s 1.2bn population is almost 4 times that of the USA and will soon be home to 20% of the world’s working age population.

Similar to the Eurozone, the task of the new government will be to face up to unpopular structural reforms. But if the new government makes progress, then international businesses can look forward to improving access to a faster growing and more dynamic India.

Economic projections: May 2014

2013E 2014p 2015p 2016-2020 2013 2014p 2015p 2016-2020p
Global (market exchange rates) 2.3 3.0 3.2 3.2 4.8 4.8 5.2 4.6
Global (PPP rates) 2.7 3.4 3.7 3.6
United States 1.9 2.7 3.0 2.4 1.5 1.7 2.2 1.9
China 7.6 7.4 7.3 7.0 2.7 2.5 3.2 3.4
Japan 1.6 1.5 1.1 1.2 0.4 2.1 1.8 1.5
United Kingdom 1.7 2.8 2.5 2.4 2.6 1.7 1.9 2.0
Eurozone -0.5 1.0 1.3 1.5 1.4 0.9 1.2 1.5
France 0.1 0.9 1.2 1.7 1.0 1.1 1.2 1.5
Germany 0.5 1.6 1.7 1.3 1.6 1.2 1.4 1.7
Greece -3.9 0.4 2.1 3.0 -0.9 -0.4 0.1 1.3
Ireland -0.3 1.7 2.5 2.5 0.5 0.5 1.3 1.5
Italy -1.8 0.4 1.0 1.0 1.3 0.7 1.0 1.4
Netherlands -0.8 0.8 1.1 2.0 2.6 0.8 1.2 1.4
Portugal -1.0 1.1 1.4 1.8 0.4 0.6 1.2 1.5
Spain -1.2 0.9 1.2 1.5 1.5 0.3 0.8 1.0
Poland 1.5 2.7 3.2 3.5 1.2 1.4 2.5 2.5
Russia 1.3 1.1 1.7 2.5 6.8 5.7 5.2 5.0
Turkey 4.0 2.4 4.0 4.5 7.5 7.8 6.5 4.8
Australia 2.4 2.7 3.0 3.1 2.4 2.8 2.6 2.7
India 4.6 5.4 6.4 6.5 6.3 5.2 6.0 6.0
Indonesia 5.8 5.5 5.8 6.3 7.0 6.2 5.3 5.1
South Korea 2.8 2.8 4.0 3.8 1.2 1.8 2.9 2.9
Argentina 5.0 0.7 1.8 3.3 10.6 11.9 13.3 9.7
Brazil 2.3 1.8 2.5 4.0 6.2 6.1 5.6 4.8
Canada 1.6 2.2 2.5 2.2 0.9 1.7 1.8 2.1
Mexico 1.5 3.1 3.7 3.6 3.8 4.1 3.8 3.6
South Africa 1.9 2.4 2.8 3.8 5.8 6.3 5.7 4.8
Saudi Arabia 3.8 4.1 4.2 4.3 3.5 3.0 3.5 4.0

Sources: PwC analysis, National statistical authorities, Thomson Datastream and IMF. All inflation indicators relate to the Consumer Price Index (CPI), with the exception of the Indian indicator which refers to the Wholesale Price Index (WPI). Argentinian inflation figures are based on the old price index which measure CPI in Greater Buenos Aires. A new index the "National and urban Consumer Price Index" (NuCPI) has now been released by INDEC the Argentinian statistical agency. We will monitor this new price index and will base our projection on this once we have several months of data available. Also note that the tables above form our main scenario projections and are therefore subject to considerable uncertainties. We recommend that our clients look at a range of alternative scenarios

Interest rate outlook of major economies
  Current rate
(Last change)
Expectation Next Meeting
Federal Reserve 0-0.25% (Dec. 2008)  QE tapering to continue during 2014 June 17-18
European Central Bank 0.25% (Nov. 2013)   On hold May 8
Bank of England 0.5% (Mar. 2009)  On hold May 8

Sources: PwC analysis, National statistical authorities, Thomson Datastream and IMF. All inflation indicators relate to the Consumer Price Index (CPI), with the exception of the Indian indicator which refers to the Wholesale Price Index (WPI). Argentinian inflation figures are based on the old price index which measure CPI in Greater Buenos Aires. A new index the "National and urban Consumer Price Index" (NuCPI) has now been released by INDEC the Argentinian statistical agency. We will monitor this new price index and will base our projection on this once we have several months of data available. Also note that the tables above form our main scenario projections and are therefore subject to considerable uncertainties. We recommend that our clients look at a range of alternative scenarios

PwC Global Consumer Index - May 2014

Global consumer spending growth picks up to 3.4% this month, dipping slightly from March. Equity markets and confidence have improved, but global money supply has been squeezed. Industrial production growth has improved, recording positive figures in most G7 economies. Global commodity prices have also picked up, another indicator of improving orders and rising demand.

The GCI is a monthly updated index providing an early steer on consumer spending and growth prospects in the world’s 20 largest economies. For more information, please visit pwc.co.uk/globalconsumerindex