Economic Outlook Discussion late 2014 early 2015

26th Feb , 2016

Differences in economic conditions between the big advanced economies are widening

US economy

Has recovered strongly in June quarter from its early 2014 weather-related weakness, and business surveys point to a solid moderately paced upturn and will encourage the Fed to progress cautiously toward ending its relatively loose monetary policy.

Eurozone and Japan

The situation is quite different in the Euro-zone and Japan. Although they still point to growth, Euro-zone business surveys have softened and the slowdown is broad-based.

Industry surveys in big economies like France and Germany, as well as in Belgium, turned down recently and there are signs of some lower demand in their services sector.

The Japanese economy is expected to contract in June quarter as demand falls in the wake of the April 1st hike in consumption taxes.

Japanese exports are also soft, despite solid growth in its important Chinese export market.

Slowing trend in emerging economies

The large emerging economies have continued

• With 3-month annualised industrial growth slipping from over 5% in late 2013 to around 3½% in May.
• Export volumes from these economies actually fell in early 2014, remained weak in April, but then rose in May.

Monthly data on economic activity shows a clear variation between regions.

• China’s growth remained solid in June with good growth in industrial output, while YTD investment and retail sales volume growth are up by double digits.
• India’s growth finally picked up in early 2014 and third quarter surveys of industry look brighter.
• Other emerging economies of East Asia growth remain modest and should stay flat until world trade accelerates.
• Latin American growth has faded, as Argentina moves into recession.

Economic outlook looking forward

Business surveys and feedback are mixed across the big advanced economies, but generally point to ongoing moderate growth.

• Global growth
  • Should quicken from 3.1% in 2014 to 3.6% in 2015, which is around the long-run trend.
• The most buoyant results to come from the US and UK.
• Euro-zone has a weak outlook
• Japanese firms think they can emerge from their recent slow period.
• Emerging market economies
  • should still account for bulk of global output growth,
  • Emerging market growth should return to over 5% in 2015 as India’s growth finally begins to pick up
• And the contribution from advanced economies will slowly rise.

David Cartney