The world economic picture remains mixed and uncertain. All regions are not only not firing on all cylinders, those that do are less than robust. Whereas the USA economy developed good momentum during the middle quarters of last year, some of that momentum was lost towards the end of the year and going into 2015. Nonetheless, it remains the growth engine of the world and the appreciating dollar reflects this. On the other side of the Atlantic, the Euro area economy performed poorly for the most part of last year, but seems to have picked up speed. Japanese growth has also surprised on the upside during the fourth quarter of 2014. Unfortunately, the downward drift of China’s economic growth (currently estimated to come in below 7% during the first quarter of 2015) acts as a brake on region-wide growth in Asia and other parts of the world. Broadly, emerging markets forecast GDP growth has been downscaled further by leading forecasters.
It is estimated that global growth ended last year around a 3% pace (at market exchange rates). Including a somewhat slower momentum in the leading US economy and lower growth in emerging markets compared to the end of 2014, with the Euro area only accelerating moderately, world GDP growth could come in slightly lower during the first quarter of 2015. Beyond the first quarter, the beneficial impact of the lower oil price and easier monetary policies in a wide range of countries are likely to feature stronger seeing a sharper acceleration of growth, possibly touching 4% towards the end of the year. Full-year growth is still forecast to come in around 3.5% in 2015, with some acceleration in 2016.
Regional context
Euro area real GDP growth accelerated somewhat during the final quarter of last year, pulled along by the German economy posting a close to 3% annualised growth rate. Survey indicators also suggest that conditions in Ireland, Spain and the Netherlands are more robust. The more competitive level of the euro and easing monetary conditions provide stimulus in order to counter the deflationary tendencies in the region and the risks associated with a possible ‘Grexit’.
USA real GDP decelerated possibly below 2% during the fourth quarter of 2014, down from 5% in the third quarter. Productivity growth is under pressure and the declining unemployment rate is partly a function of a stagnating labour force. Growth is expected to come in above 3% this year; however, expectations of an interest rate hike may shift outwards again.
Japanese real GDP growth surprised during the fourth quarter of 2014, estimated to have come in above 4% annualised. An employment recovery boosted hopes that growth is on a sustainable improving trajectory. The BoJ also remains ready to implement additional monetary stimulus. The growth forecast remains unchanged at 1.5-2% in respect of 2015.
In China the PBOC eased monetary policy by cutting banks’ reserve requirements expected to boost liquidity. Real GDP growth came in at 7.4% for 2015, but is expected to fall below the 7% level during the first quarter of 2015. The January PMI index shows that the industrial momentum eased further, adversely impacting the East Asian region. The IMF has adjusted forecast real GDP growth in China to 6.8% (2015) and 6.3% (2016).
Emerging economies’ GDP growth forecasts have been scaled down, with a number of them negatively affected on balance by the oil (and broader commodity) price declines, inter alia, driven by China’s slowdown. The Russian economy is projected to contract sharply, with its sentiment indicators coming in at record lows. In a range of countries, extending from Eastern European countries, India and some East Asian countries central banks are contemplating cutting interest rates. However, as noted previously, the emerging market picture is mixed. Economic growth is livelier in India, East Asia and Mexico. The IMF forecast for emerging markets GDP growth is 4.3% in respect of 2015, picking up to 4.7% next year.
Pieter Laubscher
27 February 2015