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Country Forecast World Product Image

Country Forecast World

  • Published: August 2014
  • Region: Global
  • 58 Pages
  • The Economist Intelligence Unit

The Economist Intelligence Unit has lowered its 2014 forecast for real GDP growth in the US to 1.7% from 2.2%. The US economy contracted by a revised 2.9% in the first quarter at an annual rate, far worse than the government's initial report. But the slump was largely due to one-off factors and, possibly, to reporting anomalies. The US economy is generally performing well, and jobs growth has been buoyant: the unemployment rate fell to 6.1% in June, the lowest since 2008. We expect the economy to grow by an average of around 3% for the rest of the year.

We have raised our 2014 economic growth forecast for Japan to 2.1% from 1.8%. Japan's economy surged by 6.7% in the first quarter as consumers raced to beat a tax rise; conditions weakened in the second quarter, but not are much as anticipated. New government reform measures unveiled in June suggest that underlying growth could be higher in the coming years than we had expected.

We have trimmed our forecast for economic growth in the euro area to 1% from 1.1%. Germany remains the bulwark of the currency zone, and we maintain our forecast for 2% GDP growth in 2014 in Europe's largest economy. Spain, once one of Europe's READ MORE >

Country Forecast World

Key changes since June 16th

World growth and inflation
We are lowering our global forecast for real GDP in 2014
The US economy is growing at a reasonably good pace
An unexplained discrepancy
Many advanced economies have been improving, but risks remain
Political risks are growing
Emerging markets are struggling to gain momentum
The ECB has taken dramatic steps to support the economy
Japan will give back some of its first-quarter growth surge
Violence in East and South Ukraine heightens geopolitical tensions
China's economy may be stabilising
Developing economies are still vulnerable
A serious and sustained rout in emerging markets is unlikely
The contagion effect could cause problems to spread
China's acceptance of slower economic growth is a major global trend

World growth and inflation: Risk scenarios
Negative scenario-Deflation derails the economic recovery in the euro zone
Negative scenario-The civil war in Syria escalates into a wider regional conflict
Negative scenario-Tensions over currency volatility lead to a rise in protectionism
Negative scenario-The emerging-market slowdown drags the world back into recession
Negative scenario-The US economy stumbles in the face of monetary tightening and political dysfunction
Negative scenario-Russia's intervention in Ukraine escalates, leading to Cold War-era tensions
Negative scenario-Tensions over disputed islands threaten to rupture Sino-Japanese ties
Positive scenario-A rapid recovery in parts of the OECD drives global growth higher
Negative scenario-Economic upheaval leads to widespread social and political unrest
Negative scenario-Global geopolitical tumult causes an oil price shock

Regional summaries: North America
US economy slumps in first quarter
US job market surges and unemployment rate falls to 6.1%
Will the first-quarter slump change the Fed's thinking?
Housing slowdown
Business investment is soft, despite record profits
Public spending is finally set to rebound
The president will increasingly resort to executive action to bypass Congress
Canada will benefit from stronger external demand in the rest of 2014

Regional summaries: Japan
The third arrow of Abenomics has been fired with conviction
The BOJ is content to keep monetary policy very loose to stoke inflation
Resilience to the tax rise prompts an upward revision to growth forecast

Regional summaries: Western Europe
ECB unveils broad package of measures to support the economy
Whatever it takes?
Delayed effect
Euro zone recovery has lost momentum
The recovery is yet to be felt in the jobs markets
European elections ratchet up domestic pressures
Parliamentary arithmetic is now slightly more complicated
European Parliament backs banking union rules
Doubts over effectiveness of new banking rules
The economic recovery in the UK is feeding through to job creation

Regional summaries: Transition economies
Central banks adopt a dovish stance in the face of deflationary pressures
The prospect of an end to bank deleveraging later in 2014
We maintain our forecast for Russia as markets stabilise
Russia cuts gas supplies to Ukraine

Regional summaries: Asia and Australasia (excl Japan)
The end of QE could generate greater volatility in Asian emerging markets
Medium-term growth would benefit from reform of structural distortions
Concerns about the outlook in China are easing, following stimulus measures
Tension in South China Sea will demand the attention of officials
The new BJP government announces measures to boost India's growth
The junta in Thailand is to turn its attention to the constitution
Australia's mining boom is now translating into higher export volumes

Regional summaries: Latin America
Further deterioration in Brazil's outlook weighs on the region's prospects
A modest growth outlook with downside risks
Divergent monetary policy trends in the region this year
Growth remains slow in Mexico but should quicken over the medium term
Brazil's economy weakened further in the first half
We expect Dilma Rousseff to win a second term
Medium-term growth prospects for most Andean economies
Problems mount in politically polarised Venezuela

Regional summaries: Middle East & Africa
Unrest and violence damages growth prospects
Political uncertainty threatens Iraq's medium-term oil production
Sanctions relief helps Iran's economy
A worrying escalation of tensions in Israel and Palestine
Economic expansion will have a positive effect on consumer spending
African countries are becoming more dependent on global capital
A fresh strike threatens growth in South Africa
Biggest economy, but bigger problems

Exchange rates
The euro has been remarkably resilient against the US dollar
Yield spreads should be supporting the US dollar, but this has not happened
The euro zone is running a large current-account surplus
Emerging-market currencies may yet come under pressure again
Despite pressures on emerging-market currencies, a crisis is not inevitable
The recent depreciations were painful but probably necessary
China's renminbi is undergoing significant changes
The PBC is promising to reduce intervention in currency markets

World trade
The recovery in global trade is losing momentum
Euro zone bank deleveraging is slowing, but trade finance is still struggling
A limited Doha Round trade deal is agreed in Indonesia
Regional negotiations show promise for global trade, but uncertainty lingers
Trade disagreements between regional powers continue to surface
Structural changes in international trade will ease global imbalances

Commodity prices
Commodity prices weighed down by high inventories
Oil price spike will be short lived
Emerging markets will lead oil demand, but at a modest pace
Surging production from the US offsets shortfalls from OPEC
Prices for critical metals are on an improving trend
El Niño risks seem to have tempered somewhat recently

Global assumptions

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