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Country Forecast World Product Image

Country Forecast World

  • Published: September 2014
  • Region: Global
  • 63 Pages
  • The Economist Intelligence Unit

The US economy staged a dramatic recovery in the second quarter, expanding by 4% at an annual rate. This reversed the unexpected slump in the first quarter, which is now widely regarded to have been an anomaly. Job creation has been strong, suggesting that consumer spending and wage growth will accelerate. The Economist Intelligence Unit has raised its full-year growth forecast for 2014 to 2.2% from 1.7%, after further revisions by the government to first-quarter GDP.

The euro zone is in danger once again of slipping into recession. The currency bloc registered no growth on aggregate in the second quarter. The three largest economies-Germany, France and Italy, which account for two-thirds of output-either stagnated or contracted. We expect Germany to revive in the second half of the year, although we have cut our 2014 GDP forecast to 1.7% from 2%. Fall-out from the Russia-Ukraine crisis is hurting the region's economies, and the situation could worsen. We have lowered our euro zone forecast for real GDP growth in 2014 to 0.9% from 1%, and we have again cut this year's projection for Russia, to 0.2% from 0.6%.

We are provisionally lowering our forecast for 2014 GDP growth READ MORE >

Country Forecast World

Key changes since July 14th

World growth and inflation
Five years after the recession ended, global growth has been disappointing
Europe is holding back the global recovery
China remains the global star
We are making several changes to our country forecasts this month
Political risks are growing
The risk of a wider crisis in Ukraine is increasing
Many economies remain fragile
Emerging markets are struggling but China is stabilising
The US economy is bouncing back
Emerging markets are at risk from rising interest rates in the US
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 violent spillover from Syria's civil war overwhelms its neighbours
Negative scenario-Russia's intervention in Ukraine escalates, leading to Cold War-era tensions
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-Tensions over disputed islands threaten to rupture Sino-Japanese ties
Negative scenario-Tensions over currency volatility lead to a rise in protectionism
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
Positive scenario-Global geopolitical tumult causes an oil price shock

Regional summaries: North America
US roars back in the second quarter
Job creation continues at a healthy clip
Exports hit new high in June, lifting the economy
The Fed eyes tightening in 2015
The housing recovery has been uneven
Business investment is soft, despite record profits
Public spending is set to rebound
The president will resort to executive action to bypass Congress
Canada will benefit from stronger external demand in the rest of 2014

Regional summaries: Japan
The consumer tax rise takes its toll in the second quarter
The government is under pressure to deliver a faster rate of economic growth
The third arrow of Abenomics has been fired with conviction
The BOJ is content to keep monetary policy very loose to stoke inflation

Regional summaries: Western Europe
The euro zone drifts into dangerous waters
Germany, the growth engine, sputters
France and Italy stumble once again
Peripheral economies provide small comfort
Still muddling through
Delayed effect
The recovery is yet to be felt in the jobs markets
EU moves to phase three sanctions as Russia tensions worsen
The economic recovery in the UK is feeding through to job creation

Regional summaries: Transition economies
The escalation of the Ukraine crisis exacts a toll on regional growth
Will Russia invade eastern Ukraine?
Decisive moment
Invasion carries high risks
Other routes to influence
The Russian central bank raises rates again in July
The prospect of an end to bank deleveraging later in 2014
Growth in Russia to slow further amid sanctions and higher interest rates
We forecast a 6.5% contraction in 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
The Chinese economy is showing the effects of government stimulus
Tension in Xinjiang and the South China Sea will demand attention of officials
The Indian economy will improve, but its institutions could be threatened
A tough stance on inflation generates confidence
The junta in Thailand is to turn its attention to the constitution
The new government in Indonesia inherits an improving economy
Australia's mining boom is now translating into higher export volumes

Regional summaries: Latin America
Argentina's debt default is unlikely to cause contagion
Our forecast features several 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
Eduardo Campos's death shakes up the Brazilian presidential election
Argentina is in default again as court judgements favour holdouts
Argentina files anti-US lawsuit at the ICJ

Regional summaries: Middle East & Africa
Violence and unrest undermine growth prospects
Political uncertainty threatens Iraq's medium-term oil production
Iran and the P5+1 extend interim deal on the country's disputed nuclear plans
Israel-Hamas fighting will damage long-term potential for peace talks
Libya's oil output will remain tenuous while political fighting continues
Economic expansion will have a positive effect on consumer spending
African countries are becoming more dependent on global capital
Struggling to contain the Ebola outbreak
US vows to reshape its relations with Africa

Exchange rates
The US dollar has finally started to strengthen against the euro
The euro may continue to show some resilience
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 continues to struggle
Russia's import ban heads the list of high-profile trade disputes
The limited WTO trade deal agreed in Indonesia becomes uncertain
The promise of regional trade agreements begins to fade
Euro zone bank deleveraging is slowing, but trade finance is still struggling
Structural changes in international trade will ease global imbalances

Commodity prices
Prices will continue to decline in 2014-15
Oil prices will fall in 2014-15
Oil consumption will be relatively soft this year
Unlike demand, developed economies will lead supply growth
Prices for critical metals are on an improving trend
El Niño risks seem to have tempered somewhat recently

Global assumptions

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