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2014 GDP Growth Forecasts

For 2014 the International Monetary Fund has somewhat rosy predictions in its World Economic Outlook report for much of the world’s Gross Domestic Product growth forecasts. The IMF predicts that East Asia and Africa will have the highest growth rates while Brazil, Russia, Japan and most of Europe will be going through much lower growth.  

With the U.S. continuing to benefit from record-low interest rates, the IMF predicts that the U.S. will provide a “major impulse” to global growth.  IMF chief economist Olivier Blanchard said, “The U.S. recovery is the strongest among advanced economies and therefore in a way it’s pulling the world”.  If that is the case, today’s numbers point to much lower global GDP growth for 2014.

The IMF predicts global growth of 3.6% this year, compared with a January estimate of 3.7%. Next year, the expansion will accelerate to 3.9%. 

China’s first three months of 2014 were the slowest quarters since Q2 of 2010.  The economy expanded 1.4% Quarter-on-Quarter which is the third straight quarter of declining growth.  Not surprisingly the data showed that investment in fixed assets declined in March which is a huge part of the Chinese economy.  There were bright spots however with both retail sales and industrial production increasing at a faster pace than in the previous month.  Year-on-year, the economy expanded 7.4% which is close to the government’s target of 7.5% for 2014.

The Russian economy contracted in the first quarter by 0.5%, which isn’t surprising due to the turmoil surrounding Ukraine.  It will be interesting to see how the economy is affected by sanctions and a slowing economy in general.  Could we see numbers like we did in early 2009?  Annual growth rate is 0.8% in the first quarter, previous quarter was 2%.  This is below the IMF’s forecast of 1-2% growth for 2014.

The United Kingdom’s GDP advanced 0.8% in the first three months of 2014, that’s five straight quarters of expansion.  The biggest increase came from services at 0.9% growth and manufacturing at 1.3% growth.  GDP was 3.1% higher than the first quarter a year ago.  This is in line with the IMF’s forecast of 2-4% growth.

The two main Euro Zone economies, Germany and France, do not release their Q1 GDP numbers for another month.  Germany and France account for almost half (47%) of Europe’s economy which means their health will determine how fast the area recovers.  Germany, the world’s fourth largest economy, has seen an annual growth rate around 1% the last three quarters and expects to see the same in Q1.  France is the fifth largest economy in the world and the second largest in the Euro Zone; they’ve seen minimal growth the last three quarters and expect Q1 to be around 0.36%.  The IMF’s predictions for Germany and France are between 1-2% 2014 GDP growth.

Brazil, the largest economy in Latin America, over the last three quarters has seen steady slowing.  The Brazilian economy advanced 1.9% over a year earlier, beating market expectations, but lower than the 2.2% growth in the previous quarter.  A surge in government spending was not enough to offset a slowdown in exports and investment.  Many still believe that Brazil is headed for a recession.  IMF forecasts put Brazil at a 1-2% 2014 growth rate.

After passing South Africa early this year as the African continents biggest economy, Nigeria continues to grow rapidly despite the global slowdown.  The country’s GDP advanced 7.6% year-on-year in the last quarter of 2013.  Nigeria continues to see robust growth in agricultural production, wholesale trade, retail and manufacturing.  With macroeconomic stability the IMF forecasts greater than 6% growth.

The United States is the world’s largest economy but in the last ten years the average growth rate has been below 2%.  GDP in the United States expanded 2.3% in the first quarter of 2014 over the same quarter of the previous year.  Over the previous quarter however United States GDP grew only 0.1% and if it wasn’t for the huge growth in healthcare spending, it could have been a contraction. 

If the US is a bellwether for the global economy than 2014 may be a slower growth year than the IMF forecasts.  No matter what happens, central banks will continue to be dovish until the overall global economy picks up.