IHS Top 10 Economic Predictions for 2014

IHS Top 10 Economic Predictions for 2014

Nariman Behravesh Chief Economist IHS December 2013

About Nariman Behravesh, IHS Chief Economist

IHS Top 10 Economic Predictions for 2014 I Copyright © 2013 IHS 2

Dr. Nariman Behravesh is Chief Economist of IHS and author of Spin-Free Economics: A No-Nonsense, Nonpartisan Guide to Today's Global Economic Debates (McGraw-Hill). Directing IHS' entire economic forecasting process, he is responsible for developing the economic outlook and risk analysis for the United States, Europe, Japan, China and other emerging markets. He oversees the work of over 400 professionals, located in North America, Europe, Asia, Latin America, the Middle East and Africa who cover economic, financial, and political

developments in over 200 countries. Behravesh and his team have ranked among the top economic forecasters over the years in surveys by Reuters, USA Today, MarketWatch and The Wall Street Journal. Behravesh holds Ph.D. and M.A. degrees in economics from the University of Pennsylvania, and a B.Sc. from the Massachusetts Institute of Technology. He is fluent in several languages and travels regularly to Europe, Asia, Africa, and Latin America.

The global growth rebound will be quite modest at 3.3% growth in 2014, compared with 2.5% in 2013

The easing of private sector de-leveraging and public sector austerity will help the world economy, especially in developed economies, emerge from its extended two-year “soft patch”

Emerging economies will enjoy stronger growth numbers due to export-led growth to the United States, Europe, and China

Upside surprises about growth will likely more than balance out downside surprises – as long as the more daunting risks facing the world economy (e.g. an oil shock) don’t materialize

3

Overview: World growth will accelerate gradually in 2014

IHS Top 10 Economic Predictions for 2014 I Copyright © 2013 IHS

There will be less drag on the economy due to fiscal policy, allowing the underlying strengths of the economy to become more visible

Economic drivers of growth in 2014 will include:

Housing (despite the recent run-up in mortgage rates)

Ripple effects of the unconventional oil and gas boom

Capital spending increases (although more subdued relative to other cyclical recoveries)

Consumer spending to support US growth (should come in around 2.5% in 2014 after a meager 1.7% in 2013)

4

Prediction 1: US growth will slowly speed up


5

Prediction 2: The European recovery will proceed, but at a very sluggish pace


The Eurozone recovery will have staying power and support growth of 0.8% in 2014, utilizing: Very accommodative monetary policy Stabilized labor markets Less emphasis on austerity by EU officials Improved spending power because of ultra-low inflation Better competitiveness in the peripheral countries More confidence in the ability of Eurozone politicians to

manage the sovereign debt crisis. Some countries (e.g. Greece, Italy and Spain) will struggle to

achieve positive growth Both Germany and the United Kingdom will grow faster in 2014

than they did in 2013

After hitting a low point in early 2013, China’s recovery reaccelerated thanks to the government’s “mini-stimulus.” IHS expects the pace of Chinese growth to quicken a little from

7.8% in 2013 to 8.0% in 2014. Further moderate stimulus will be applied if growth falls below

7.5%. Much stronger stimulus will be forthcoming if growth falls below 7.0%. The bigger growth challenge for China will be over the medium

term, as it deals with the daunting problems of an aging and the consequences of rapid credit growth, including a new housing bubble and rising debt levels A bigger uncertainty facing the global economy in the coming

decade is whether China can avoid the “middle-income trap”

6

Prediction 3: China’s growth rate will be sustained


The global environment facing emerging markets will be more growth friendly than it has been in the last three years US and Chinese growth will be a little stronger and the

Eurozone will no longer be a drag on the world economy Emerging markets exports will again become a source of growth Real GDP growth for these economies will strengthen from 4.7% in

2013 to 5.4% in 2014. There is an expectation that the 2014 “tapering” of US monetary policy will have a relatively minor impact A return to the very rapid growth rates enjoyed in boom years of

the 2000s is unlikely unless governments in these countries enact more structural reforms to raise productivity, allocate capital more efficiently, and thereby boost potential growth

7

Prediction 4: Other emerging markets will perform a little better


The unemployment rate in the advanced economies will only decline from 8.1% in 2013 to only 7.9% in 2014

Technology-driven productivity improvements in both the manufacturing and services sectors will continue to erode the demand for labor

Firms’ aggressive cost-cutting efforts will continue largely unabated in 2014, heightening pressures on many governments to implement corrective pro-employment policies

US unemployment rate is expected to decline from 7.4% in 2013 to 6.6% in 2014, as much from weakness in labor-force growth as from genuine employment growth

Eurozone unemployment will remain near its record highs 8

Prediction 5: Unemployment rates in the developed world will remain high


Gradual strengthening demand for most commodities will be balanced out by either higher production or ample inventories Commodity prices in 2014 will be essentially the same as in

2013—they will go nowhere Tame commodity markets, along with excess capacity in labor and

product markets, will keep 2014 CPI inflation below 2% for the advanced economies A growing risk is that inflation could continue to fall, as it has

since 2011 Price pressures will also ease in the emerging world Emerging markets inflation, the result of the “taper panic” in

emerging markets (May to August 2013), which pushed down exchange rates and pushed up imported inflation, will reverse

9

Prediction 6: Commodity prices will go nowhere and inflation will remain a low-level threat


The Fed is expected to begin scaling back its bond purchases no later than January 2014, while leaving interest rates unchanged until early 2015

IHS expects the Bank of England to wait until the second half of 2015 to raise interest rates.

On the other hand, given continued weakness in Eurozone growth, the European Central Bank may feel compelled to do its bit by engaging in another round of Long-Term Refinancing Operations (LTROs)

In late 2013, some emerging-market central banks began raising rates; but as inflationary pressures ease, they will likely put policy on hold or (in a few cases) ease

10

Prediction 7: The Fed will start scaling back its stimulus, while other central banks will likely wait or provide more


With the US federal spending sequester now replaced by a fiscal compromise worked out between the Democrats and Republicans, the drag from US fiscal policy will ease considerably in 2014 One manifestation of this will be an unchanged federal budget deficit

(at just under $700 billion) from 2013 to 2014—following a sharp decline from around $1.3 trillion in 2011 Similar easing of fiscal pressures will be evident in Europe After having been slashed during the past three years, the budget

deficits in many of Western Europe’s economies will fall more gradually over the coming year, as they near more-sustainable levels relative to GDP

Many of the “crisis economies” of the Eurozone will be given a little more time to meet their fiscal targets

11

Prediction 8: Fiscal headwinds will ease


Two important trends will push the dollar up against most of the world’s key currencies US growth will be strengthening and growth differentials with other

advanced economies will be sizeable Second (and possibly more important) is the near certainty that the Fed will

be removing stimulus sooner than most other major central banks. This will weigh down on the euro and the yen and also push down the currencies of emerging markets—especially those that have precarious balance-of-payment conditions

Given that financial markets already anticipate the Fed tapering, the impact of the actual tapering, when it happens, could be smaller than what happened in the summer of 2013 The Chinese renminbi is the only major currency that is likely to

appreciate against the dollar in 2014 12

Prediction 9: The US dollar will strengthen against most currencies


In recent years, the US, Eurozone, and Japanese central banks have exhibited a proactive approach to managing crises (despite facing vocal domestic debates), and have thereby removed some of the impediments to future economic growth This has contributed to a shift in the balance of risks from negative

to neutral Over the next year, we are likely to be more surprised on the upside

than the downside, but there is no shortage of downside risks: instability in the Middle East and North Africa, more fiscal drag, more disappointing news from emerging markets, etc… We could see stronger-than-anticipated growth in the United States,

the United Kingdom, and Germany Emerging markets such as China, India and Brazil could also do

better than predicted 12

Prediction 10: There will be more upside risks than downside risks facing the global economy


13

Learn more


Learn more about our economic predictions and get additional insights on the global economic outlook and risks. ihs.com/predictions

About IHS IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today’s business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately 8,000 people in 31 countries around the world.

http://www.ihs.com/info/ecc/a/economic-predictions-2014.aspx?ocid=top10-2014-ss:social-network:01�

IHS Top 10 Economic Predictions for 2014

News & Politics

Transcript of IHS Top 10 Economic Predictions for 2014