World Economic Prospects

Overall, 2013 has been a disappointing year for global growth, with world output set to expand by a modest 2.1%. But growth has not disappointed everywhere – the US has seen sub‐trend growth and key emergers have experienced a marked slowdown, but there have been strong rebounds in Japan and the UK. Our latest forecasts suggest this pattern of divergent growth trends will continue into 2014, among both the advanced and emerging economies. Both the US and the Eurozone look set to end 2013 on a weak note with low growth in Q4, but for the US this will be mostly a technical correction from a strong Q3, while for the Eurozone more enduring problems exist. We expect US growth to accelerate to a 3% annual pace by H2 2014, but the Eurozone is in danger of flirting with renewed recession; our forecast is for just 0.9% growth next year. The risk of a slide into deflation in the Eurozone may be a key theme next year. Among the key emergers our forecasts suggest growth in China will continue at around a 7% pace next year, moderate by the standards of recent years. More serious underperformance is likely in the other BRICs – Russia, India and Brazil – which appear to be facing structural impediments to sustained rapid growth. Another area of divergence in 2013 has been policy settings. This too is likely to continue into next year. Some emergers will continue with tight or even tighter monetary stances due to inflationary pressures and currency weakness, holding back growth. This may be exacerbated by the Fed reducing its asset purchases (which we expect from early 2014) the fallout from which remains uncertain. Meanwhile, in the Eurozone policy is likely to be loosened further – but probably not enough – while aggressive monetary expansion will continue in Japan. One consequence of this is likely to be downward pressure on the euro and the yen during 2014.