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World Economic Prospects
Publication year - 2014
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.12099
Subject(s) - economics , monetary policy , unemployment , monetary economics , inflation (cosmology) , quarter (canadian coin) , macroeconomics , history , archaeology , physics , theoretical physics
Overview: Monetary stances shifting but markets still calmUS growth for Q1 was revised down very sharply, so that despite an expected bounce in Q2, we have cut our 2014 GDP forecast for the US further this month to 1.5% from 2.1% last time. Despite this, we have brought forward our forecast of the first Fed rate hike by one quarter to Q2 2015. In part this reflects broad labour market improvements, which continued in June with buoyant payrolls growth and unemployment dropping to close to 6% – compared to nearly 8% at the start of last year. The start of monetary tightening is also getting closer in the UK, where with GDP growth at 3% we now see the first increase in rates as early as Q4 of this year. Meanwhile, policy is getting looser in the Eurozone. The ECB is now talking about an ‘extended period’ of very low short‐term rates and we expect no rate hike until Q2 2017. The ECB's June policies have so far failed to produce any significant euro weakness, however. As a result, with survey data now suggesting the Eurozone recovery may be softening, the danger of a lengthy period of very low inflation and weak output growth remains high. In our view Japan also needs to loosen policy further. The existing QE programme is not delivering a sufficiently strong monetary impulse to offset fiscal tightening, risking a slump in growth over the next few quarters unless the BoJ moves fast. These divergent moves in monetary stances among the advanced economies are as yet not unsettling financial markets. Global growth remains sub‐par, now forecast at 2.6% for this year and 3.1% next, but the outlook is not yet weak enough to disturb the narrow spread and low volatility environment. Probably the main near‐term risk is renewed problems in the emergers. Forecasts are again mostly stable this month (excepting another cut in Brazil) and financial conditions fairly benign. But structural challenges in the BRICs, geopolitics and serious imbalances in some countries retain the potential to generate a shift in global financial conditions.