The Global Economy

In 2014 we expect the global economy annual average growth to increase to a level of 3.8 %, which largely corresponds to the trend growth rate. We anticipate growth in all major regions, with the U.S. and China being the main drivers. We expect GDP growth in the eurozone to remain moderate. Our forecast for global inflation in 2014 is 3.4 % on an annual average.

In industrialized countries growth will likely double to 2.2 %; consumer price levels are anticipated to rise by 2.0 % in 2014. Additionally we expect an acceleration of growth to 5.3 % in emerging markets with inflation to be at 5.0 %. Industrialized countries’ contribution to growth should be around 30 % in 2014.

After two years of declining economic activity, GDP in the eurozone is expected to recover moderately by 1.0 %. A continued negative output gap and weak commodities price developments are likely to ensure that inflation will be relatively moderate at 1.0 % in 2014. The severity of the sovereign debt crisis should continue to diminish, while uncertainty and the negative effects of austerity programs, especially in the peripheral countries, are also expected to decline. In addition, the recovery of the global economy is generating positive external stimuli. The ECB’s continued expansive monetary policy will support the recovery effect. We anticipate the ECB to maintain its key interest rate at the current historically low level of 0.25 % in 2014.

Within the eurozone the shrinking private and public debt levels will remain a major challenge especially in the peripheral countries, and may continue to damp growth. German economy growth at 1.5 % is again likely to be stronger than in the eurozone in 2014. Given its relatively high degree of openness, the German economy is benefitting more strongly from the global economic recovery than other eurozone countries. In addition, public and private debts are at sustainable levels.

In the U.S, we expect a strong economic growth of 3.5 % and an increase of consumer price levels by 2.5 % in 2014. Hence, the U.S. is likely to be one of the main drivers of growth. This strong growth should be driven by an improved labour market, the recovery in the real estate market and the lower fiscal drag. In addition, the reduction in private debt levels in the U.S. began relatively early – unlike in the eurozone – and is well advanced as a result. Although the U.S. Federal Reserve may gradually reduce its asset purchases by the end of 2014, its monetary policy is expected to remain accommodating with a key interest rate between 0 % and 0.25 %.

At 0.7 %, the Japanese economy is likely to grow slower compared to the previous year and the inflation rate is expected to rise to 2.8 % in 2014, primarily as a result of increasing consumption taxes.

In the emerging market countries we anticipate growth to accelerate in 2014. Noticeable differences in growth levels exist between the individual regions. Economic activity in Asia (excluding Japan) is likely to show relatively strong growth of 6.9 % in 2014. We expect China to be the driver of growth in Asia. An external stimulus provided by the upturn in domestic demand in industrialized countries and the profound reforms – deregulation, further liberalization of the financial markets and social reforms – approved in November 2013 should reduce the level of influence that the state has on companies and the financial system, thereby increasing the efficiency of the state in the process. China’s GDP is expected to grow by 8.6 % and the inflation rates are projected to be 3.5 % in 2014. Although growth in India should increase to 5.5 % in 2014, it will remain below the level of potential growth. This development should be driven by a recovery in the level of investments and exports as well as by the implementation of comprehensive reforms. We see consumer prices rising by 4.3 %.

Growth in Latin America will probably be less dynamic; it is likely to increase moderately to 2.7 % in 2014. Economic growth in Brazil is expected to be disappointing at 1.9 % in 2014. Infrastructure bottlenecks and a lack of fundamental reforms will have a detrimental effect. We expect inflation in Brazil to be 6.0 % in 2014.

Uncertainties for the economic outlook could stem primarily from Europe and the U.S.. The impact of the interest rate increase on the bond markets as a result of the change in direction of U.S. monetary policy could turn out to be greater than we expect. This would lead to problems especially for the emerging markets, whose structural weaknesses have been masked by inflows of portfolio investments in recent years. In Europe, a significant potential impact could arise not only from the unforeseeable effects of the comprehensive review of the European banking system by the ECB and the European Banking Authority, but also from political developments in many EU member states. There are also geopolitical risks. The conflict in the Middle East could intensify, bringing about a significant rise in oil prices. Furthermore, an escalation of the disputes surrounding China’s claims to islands in the South and East China Seas which are opposed by Vietnam, the Philippines, Malaysia, Japan and Korea, could have considerable negative effects on the global economy.