Global Economy Watch: New Year predictions for 2014

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  • Advanced economies get their mojo back: For the first time since 2010 we expect advanced economies to contribute about 40% to global GDP growth.
  • Fiscal uncertainty receding in the US: In 2014, the largest economy in the world, the US, is projected to boost global GDP growth by around 0.5 percentage points (compared to 0.35 percentage points in 2012) when calculated at market exchange rates. We think the possibility of another federal government shut-down in 2014 is remote and thus fiscal uncertainty is projected to pose less of a drag on the wider US economy and specifically for smaller businesses which create most jobs.
  • Low but positive growth for Greece and other peripherals: In our main scenario (where we assume the Eurozone’s institutional reform program continues unabated) we project GDP to grow by 0.8% per annum for 2014, which is the fastest rate since 2011. We are cautiously optimistic that peripheral countries like Greece and Portugal will post positive but low GDP growth rates. Ireland, however, is projected to out-grow the rest of the peripheral economies on the back of robust export growth.
  • Stronger economic growth prompts shifts in monetary policy in the UK and US: As economic growth and inflation picks up and central banks’ unemployment thresholds are met, we expect policymakers’ agenda to focus on the pace of the withdrawal of unconventional monetary policy measures.
  • Risk of upward pressure on oil prices: In 2014, we expect the pick-up in growth in the US and the Eurozone to lead to higher demand for oil.

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