US and EU economic forecast improving for 2014

A US and EU economic forecast for 2014 by Standish Mellon Asset Management Company LLC predicts GDP (gross domestic product) growth of 2.5% to 3% (annualized) in the US during the second quarter of 2014.

The report – May Global Macro Views – explains that the first quarter’s very low growth of just 0.1% was due to the abnormally harsh winter weather.

The authors believe that the recent increase in hiring in the US will probably boost consumer spending, which in turn will help lift growth.

Standish forecasts overall global GDP growth will be 3.5% in 2014, rising to 3.7% in 2015.

Eurozone forecast

According to purchasing managers’ surveys, the Eurozone looks set for continued growth.

Thomas D. Higgins, chief economist and chief global strategist for Standish, said:

US and EU economic forecast
(Source: Standish Mellon)

“Economic growth has surprised to the upside despite a slowdown in the broader global economy suggesting that the risk that Europe will relapse in recession is low. Public and private deleveraging across the periphery economies including Spain, Italy, Portugal will restrain growth.”

The report authors believe there will be further easing from the European Central Bank as Eurozone inflation, which was at 0.7% (annualized) in April and 0.5% in March is too far below its target of 2%. “Such policies will continue to put downward pressure on the euro,” they wrote.

Japan

There were widespread increases in wage growth this spring in Japan, the first time in more than twenty years.

Higgins said:

“It remains to be seen if wage growth will be sufficiently robust to prevent the erosion of purchasing power in a higher tax and inflation environment, but the key metrics are moving in the right direction.”

Standish forecasts economic growth of 1% in Japan for this year and next.

United Kingdom

In the UK, GDP growth appears to be driven by both services and manufacturing. Standish predicts 2.7% economic growth for this year and 2.5% for 2015.

Higgins said:

“We expect GDP growth to slow during 2014 as the U.K. economy transitions from a relatively fast-paced recovery to a more sustainable rate of growth.”

China and the rest of the world

Standish forecasts GDP growth to slow to 7% in China in 2015 from 7.2% in 2014. The authors noted that fiscal and monetary policies should keep boosting the economy enough to prevent a sustained loss of momentum.

The authors predicts 2.5% GDP growth in Latin America for 2014, and 3.2% in 2015. The accelerating US recovery should help boost economic activity in the region.

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