The Global Economy

The global economy is expected to grow moderately in the first half of 2013. Both the recession in the eurozone and concerns surrounding the U.S. debt ceiling debate should have a dampening effect. In the second half of the year, however, we anticipate a moderate upturn in the global economy, with growth gradually reaching its trend level. We expect an annual average of 3.2 % in global GDP in 2013. Our forecast for global inflation in 2013 is 3.2 % on an annualized average, slightly less than in the previous year. At the beginning of the year inflation in the industrialized countries should decrease slightly on account of unexploited capacities. In the course of the year, we expect inflation to rise again as the expected recovery sets in both in the industrialized countries and in the emerging markets. For 2014, the upturn in the global economy is likely to continue, reaching growth of 4.0 %. We expect global inflation to increase to 3.5 %.

The moderate acceleration of global economic growth in 2013 (as an annualized average) is a result of the relatively low growth rates in industrialized countries as compared with emerging markets. We expect that the industrialized countries’ contribution to growth will only be around 20 % in 2013 and about 25 % in 2014. The economic recovery could well be stagnating, particularly in the eurozone.

Fears that the eurozone could break apart have been significantly allayed both by the ECB’s announcement that, subject to conditionality, it would make unlimited purchases of sovereign bonds on the secondary market (Outright Monetary Transactions) as well as the clear political will of the eurozone member countries to hold together. We expect that fiscal policy will be less restrictive in 2013 than in the previous year, and also that monetary policy will remain expansive and that credit conditions will improve. The sovereign debt crisis should gradually become less severe. In addition, the year is likely to see positive impulses come from the recovery in the U.S. and increasing foreign trade demand from the emerging markets. Since the eurozone will probably be in recession in the winter months of 2012/2013, GDP in the eurozone is likely to contract by 0.3 % for the year as a whole in spite of the recovery expected later in the year. Germany will probably be the only larger country in the eurozone to actually see its economy expand. For the countries of southern Europe, we expect GDP to fall again in 2013, though not as strongly as in the previous year. For 2014, we expect a continued recovery for the eurozone and GDP growth of 1.1 %. Germany’s economy should grow by 1.5 %.

For the U.S., we are projecting that GDP growth will accelerate over the course of the year. In the first six months, growth will probably be dampened by concerns over resolving the deficit reduction and debt ceiling issues. Assuming that a viable compromise is found, we expect growth to increase to approximately 3 % by the end of 2013. Based on slow growth at the end of 2012 and a relatively weak first half of 2013, we expect annualized GDP growth of 2.0 %, which is slightly below the 2.3 % of the previous year. The recovery on the real estate market is likely to accelerate, and the situation on the employment market should gradually further improve. In 2014, we expect 2.9 % growth in the U.S. economy.

The Japanese economy is expected to stabilize in the spring of 2013, following the recession in the second half of 2012. Over the course of 2013, the increase in world trade in conjunction with the weaker yen should see demand for exports rise. In addition, economic stimulus packages and an expansive monetary policy are likely to provide growth impulses. Japanese GDP will probably increase by 1.2 % in 2013 and 0.7 % 2014.

In emerging markets, we expect growth of 5.5 % in 2013 and 6.0 % in 2014. The emerging markets should therefore remain the global economy’s engines of growth. Based on rising domestic demand and stronger order flows from industrialized countries, growth should rise steadily. However, there are clear differences in growth between the individual regions. Asia (excluding Japan) is expected to show relatively strong growth of 6.7 % in 2013 and 7.5 % in 2014, driven by China. The economic expansion should accelerate over the year, particularly due to the rise in foreign demand and urbanization-driven investment, with growth reaching its trend level in the second half of the year. We expect China´s real GDP to increase by 8.2 % in 2013 and 8.9 % in 2014 on the back of stabilizing external demand and helped by rebalancing policy to support domestic consumption. India’s growth is also poised to rebound to 6.8 % in 2013 and 7.1 % in 2014 as investment activity will benefit from a better global backdrop and more liberal foreign investment regime in a few sectors. Growth in Latin America will probably be less dynamic. We expect GDP to rise there by 3.5 % in 2013 and 3.9 % in 2014. Brazil’s real GDP growth is projected to accelerate to 3.5 % in 2013 and 4.2 % in 2014. Main drivers are improving global economic conditions, very low domestic interest rates and continued efforts by the authorities to raise economic growth, not least in view of the 2014 presidential elections.

The economic outlook could be impacted primarily by uncertainties arising in the U.S. and Europe. The U.S. financial markets could face significant upheavals, if, in light of the political deadlock, no agreement is reached on raising the debt ceiling or implementing spending cuts. In Europe, attention should be focused on the election in Italy and negotiations on the first rescue package for Cyprus. In addition, all forecasts for the region are based on the assumption that foreign demand will pick up – which in turn depends on a self-reinforcing recovery of world trade. Should the anticipated gradual economic recovery fail to materialize, the markets could lose their faith in European countries’ commitment to carry out structural reforms. In addition, the conflict in the Middle East could intensify and cause oil prices to rise sharply.

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