In IHS Global Insight’s May World Flash, IHS Chief Economist Nariman Behravesh and IHS Global Insight Economist Sara Johnson offered an interesting snapshot of global economic conditions midway through 2013. Electrical Marketingoffers the following synopsis with permission of IHS Global Insight.
The global economic outlook remains lackluster, with real GDP growth predicted at only 2.5% in 2013 and then gradually accelerating to 3.5% in 2014. The sustained weak growth is the result of deleveraging (including very tight fiscal policies) and political uncertainties in the United States and Europe.
In the emerging world, there are few signs of a growth rebound and these economies (including China) will not be locomotives of global growth any time soon. Going forward, there could be positive growth surprises from the United States, Japan, parts of Asia, Africa, and Northern Europe. On the other hand, growth in Southern Europe and China could surprise on the downside.
United States — A milder-than-expected Spring swoon? Federal spending cuts will reduce annualized real GDP growth from 2.5% in the first quarter to 1.4% in the second quarter. Nevertheless, the underlying fundamentals of the private economy remain solid, especially in housing markets. Real GDP growth is expected to strengthen in the second half of the year, reaching a 3% pace by year-end.
Eurozone — A deeper and longer recession is leading to some austerity relief. IHS expects a drop in real GDP of 0.7% in 2013, followed by very weak growth of 0.4% in 2014. The deepest recessions are in Southern Europe, although North European economies continue to get dragged down. The good news is that European officials are becoming more adept at crisis management.
The contagion from the recent Cyprus crisis was minimal, and Italian and Spanish bond yields have plummeted in recent months. Protracted recessions and easing financial tensions have led to both more monetary easing by the European Central Bank and fiscal austerity relief by European Union leaders — with the blessing of German politicians. This will help the recovery process.
Japan — A moderate expansion is underway, thanks to aggressive policies. Real GDP increased at a 3.5% annual rate in the first quarter, led by robust gains in exports, residential investment, and consumer spending on durable goods. Yet, capital expenditures fell for a fifth consecutive quarter, reflecting caution about the sustainability of growth. The Abe government’s “three arrows” strategy has been downgraded to “one and a half arrows”—full monetary easing and partial fiscal stimulus, but no structural reforms, so far. Even in its scaled-down version, Abenomics will help to keep growth above 2% for the remainder of 2013. Sales-tax increases in April 2014 and October 2015 will be a drag on the recovery.
China — Looking a little wobbly, as the government tries to sustain growth, while taking the froth out of real estate. The first-quarter slowdown in China’s growth rate occurred despite a surge in credit issuance. This suggests that either the efficiency of credit allocation is declining or, more likely, that credit is
fueling real estate again. After a correction in 2012, house prices are rising at the fastest rate in 18 months. Government efforts to cool speculation could become another headwind for growth in the coming year. IHS projects real GDP growth to hold at 7.8% in 2013, and then pick up gradually to 8.1% in 2014 and 8.4% in 2015.
Bottom line. A number of recovery forces will converge to make growth stronger at the end of this year and during 2014, including a stimulus-induced rebound in Japan, the easing of sequester pressures in the United States, and some policy relief in Europe.