World Economic Prospects

Overview: US acceleration brings a positive start to 2014

• A series of positive data releases in the US has led us to revise upwards our growth forecasts for 2014. We now expect US GDP to rise by over 3% this year, compared to 2.7% forecast a month ago.
• A key factor changing the US outlook is a more confident consumer. In the three months to November, real consumption rose at an annualised pace of 5%, the strongest in four years. This has been partly financed by a reduced saving rate – but the saving rate has been much lower in the recent past and steady employment gains should support both income and consumer sentiment in the year ahead.
• Also supporting growth this year in the US and the broader global economy will be wealth gains. In recent years, global stock prices at the end of a given year have been a reasonable predictor of economic growth in the following year, and global equities were up over 20% on the year at the end of 2013.
• Nevertheless, the global growth outlook remains patchy. An optimistic picture in the US, UK and Japan contrasts with a rather mixed picture the Eurozone – where some economies are still contracting and where there is a risk of deflation.
• The picture is also subdued in the key emergers. In contrast to the developed economies, emerging market stocks are down 10% on the year as higher US yields draw capital away. Weak currencies, inflation and high interest rates are weighing on growth in markets such as India, Brazil and Turkey.
• These factors are likely to wane only slowly as the year proceeds and could even worsen if tapering in the US is faster than expected. A stronger US economy may not fully offset this – the US's strong competitive position could direct more of rising US demand to US products than in previous upturns.
• As a result, we expect emerging growth to firm only modestly this year, to 4.5% from 4.1% in 2013 – well below pre‐crisis levels of around 7%. Global growth too will remain below par at 2.9%, from 2.2% in 2013, but improving to over 3% next year.