LONDON: A much better year lies in store for most of the world’s major developed economies, although weak inflation will persist, complicating central banks’ ability to get interest rates back to normal, Reuters polls forecast yesterday.
As in the last few years, the United States looks set to the lead the way, with growth also quickening in Britain and Germany.
However, Japan looks set to disappoint and the euro zone will probably lag again compared with its Western peers. Emerging markets again look a mixed bag.
Perhaps the main difference this year is that forecasts from the 300 or so economists polled across the world over the last week at least suggest little prospect of a return to recession in the euro zone, the world’s largest trading bloc.
Overall, the poll showed the world economy will grow 3.6 percent this year compared with 2.9 percent in 2013. That would snap a three-year stretch of slowing global growth since the world economy first rebounded from the severe recession of 2009. The last few months have been marked by steeply falling inflation in many of the top developed economies, with consumer prices rises in some cases far below stability targets set by their central banks.
Christine Lagarde, head of the IMF, on Wednesday warned of the risk of deflation — a damaging and sustained spiral of falling prices — even as she was optimistic about improving economic growth. Although the poll suggested deflation itself looks unlikely, weak inflation will remain widespread.
Consumer prices are expected to rise tepidly in most of the countries polled - even in the euro zone, where inflation slowed to 0.8 percent in December.
“We’re not forecasting a descent into outright deflation. Instead, we’re highlighting the risk that inflation remains too low or, worse, that it continues to sink over the next two years,” said Stephen King, group chief economist at HSBC, in its global outlook for the year.
Mexico’s ambitious reform agenda will start to pay off after a very disappointing 2013, but the recovery will not likely be as strong as previously hoped as Latin America braces for a bumpy year for local markets.
Turkey too is on course for a difficult year ahead, although growth prospects in South Africa look better in 2014.
The consensus for the world’s largest economy, the United States, was upgraded slightly compared with a poll last month. It is expected to grow 2.9 percent, up from 2.6 percent in the December poll and versus an estimated 1.9 percent in 2013.
In Japan, the world’s No.3 economy, inflation will stay well below target, with the poll suggesting companies there are cautious about passing on their higher profits to employees - seen as vital for the country’s economic revitalisation. Indeed, Japan’s economic growth is expected to slow to just 0.7 percent for the 2014-15 fiscal year, compared with 2.5 percent for the previous period.
The eurozone, by comparison, looks a long way from getting to that point. While this year promises some modest economic growth — around 1 percent compared with a 0.4 percent contraction this year — the low level of inflation remains worrisome.
Reuters
