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Country Forecast World Product Image

Country Forecast World

  • Published: April 2014
  • Region: Global
  • 57 Pages
  • The Economist Intelligence Unit

The showdown between Russia and the West over Ukraine has unnerved investors. Stockmarkets globally fell by almost 3% in the week before the controversial referendum in Crimea on March 16th, in which voters opted to re-join Russia. The West will impose modest sanctions on Russia, but the damage has already begun: Russia's stockmarket is down by more than 20% in the last month, and the rouble has fallen by almost 10% against the US dollar since the start of the year. The Economist Intelligence Unit is this month lowering its 2014 real GDP forecast for Russia to 2% from 2.8%. We expect tensions between Russia and the West to worsen, but a military confrontation is very unlikely, and we do not, at this stage, expect sanctions-and the inevitable Russian retaliation-to reach the stage where they would seriously damage the global economy.

The US economy is showing signs of reviving after a weather-induced slowdown at the turn of the year. Employers created 175,000 net new jobs in February, better than most analysts expected, and retail sales recovered. In addition, fewer workers were laid off. The improving numbers support our forecast for real GDP growth of 3% in 2014.

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Country Forecast World

Key changes since February 10th 2014

World growth and inflation
Political crises are unnerving markets and curbing growth
A war over Crimea is not in prospect
China's economy has been slowing
Global output will climb this year, owing to the advanced economies
A serious and sustained rout in emerging markets is unlikely
Political instability has been a trigger for market turmoil
The contagion effect could cause problems to spread
Higher interest rates will provide some protection for emerging markets
Momentum is reviving in the US
China's decision to accept slower economic growth is a major global trend
China's economic rebalancing poses risks to the global economy

World growth and inflation: Risk scenarios
Negative scenario-Tensions over currency volatility lead to a rise in protectionism
Negative scenario-One or more countries leave the euro zone
Negative scenario-The emerging-market slowdown drags the world back into recession
Negative scenario-The US economy stumbles in the face of monetary and fiscal tightening
Positive scenario-A sustained decline in oil prices provides a global economic fillip
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-The civil war in Syria escalates into a wider regional conflict

Regional summaries: North America
Bad weather curbs US momentum
Firmer foundations
Goodbye QE3
Job creation accelerates in February
Public spending is finally set to rebound
The president will increasingly resort to executive action to bypass Congress
Household deleveraging is advancing gradually
Housing slowdown
Canada will benefit from stronger external demand in 2014

Regional summaries: Japan
The impact of Abenomics remains positive
The consumption tax rise will test support for Mr Abe
The yen strengthens in early 2014 amid risk aversion
Third-quarter 2013 GDP growth slowed to 0.3%

Regional summaries: Western Europe
The euro zone recovers, slowly
The recovery is yet to be felt in the jobs markets
Fears of deflation re-emerge
More "unconventional" policy is likely
ECB gives breathing space but political leaders must take action
The clock ticks down on banking reform
The economic recovery in the UK is feeding through to job creation

Regional summaries: Transition economies
The region will benefit from a recovery in the euro zone
The cycle of monetary easing is likely to have run its course
The prospect of an end to bank deleveraging later in 2014
Russia, already sluggish, could suffer from sanctions
Anti-government protests in Ukraine turn violent

Regional summaries: Asia and Australasia (excl Japan)
The region's exporters will benefit from stronger external demand
A pressing need for reform
A slow start to the year in China
Policymakers accept the need for an increased role for the market
We shade down our 2014 growth forecast for India
The next government will rely on support from smaller parties
Australia's performance will be less dependent on mining investment

Regional summaries: Latin America
Brazil's real interest rates are the highest of any major economy
Argentina and Venezuela aside, the region should prove resilient
A modest recovery is in prospect in 2014
Brazil's macroeconomic framework has been weakened
Rapid passage of the structural reform agenda in Mexico
Argentina's economy is likely to shrink in 2014

Regional summaries: Middle East & Africa
Political insecurity will hold back economic progress in MENA
Economic growth will improve in 2014‑15 but political risks remain high
Strong headline growth rates mask significant variance
African countries are becoming more dependent on global capital
South Africans will soon go to the polls
South Africa will grow modestly amid political and economic challenges
Political tensions will harm the Nigerian economy

Exchange rates
We have changed our US dollar:euro forecast this month
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 widened the currency's trading ban in mid-March

World trade
Global trade shows signs of momentum in second half of 2013
Euro zone bank deleveraging is slowing, but trade finance is still struggling
A limited Doha Round trade deal is agreed in Indonesia
Regional trade 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
Uncertainty over Chinese demand will weigh on commodity prices again
China and US to lead global oil demand growth
Oil output growth will pick up in 2014‑18, but geopolitical risks persist
Debate over allowing US oil exports will intensify
Ample supply in 2014-15 is expected to keep prices in check
Industrial prices are diverging on specific market fundamentals
A further decline in soft commodity prices is in prospect in 2014

Global assumptions

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