World economic forecast 2014

In its world economic forecast for 2014, Oxford Economics has made ten predictions, among them that GDP (gross domestic product) in the US will accelerate in 2014.

The report, titled World Economic Outlook 2014, makes the following predictions:

US economic growth will speed up

US GDP growth is forecast to accelerate in 2014, to an annual rate of 3% by the second half of the year, as consumer spending gets boosted by reduced fiscal restraint, solid employment growth and greater political certainty.

Although the housing sector will also help drive economic growth, higher mortgage rates and the impact of scaling back of the Fed’s stimulus package will moderate its effect.

The authors warn that there will still be some risks, including the danger of policy errors. Although the US economy’s impact on the global rebound will not be as great as in previous upswings, among the advanced economies “the US will look strongest.”

Eurozone and a recession recurrence risk

The authors believe the “Eurozone will flirt with renewed recession.” During the third quarter of 2013, the region’s economy grew by just 0.1%. In 2014 the Eurozone will be facing a constant risk of slipping back into recession, especially during the first half of the year.

During the second half of 2014, the authors expect things to gradually improve.

If a recession does ensue, there will be a serious risk of the bloc sliding into deflation, which would put into question debt sustainability of several Member States.

Low inflation in the advanced economies

There are considerable output gaps in the advanced economies. The report predicts that inflation will probably not be fast enough to close them. Wages growth will be weak, as will global export prices “due to sharp market competition.”

The authors forecast that inflation will most probably not be a problem in the advanced economies in 2014. In fact, for the Eurozone the problem is likely to be the threat of deflation.

Emerging markets – another “patchy” year

Chinese GDP growth is expected to plateau at just over 7% in 2014, a very modest rate compared to previous years. Chinese authorities will try to move reliance on growth from exports and investment to domestic demand and expenditure on infrastructure.

The other BRIC countries – Russia, India and Brazil – will fare worse than China, with GDPs growing at well below their rates of recent years. US Federal Reserve tapering will cause capital to move away from emerging economies, “leaving those with weak external positions at risk of renewed currency weakness.”

In 2014, the emerging economies will diverge into two main groups, the more vulnerable and the more successful countries.

Important elections in South Africa,, Indonesia, Turkey, India and Brazil in 2014 could trigger political risks that could affect economic growth.

The report also predicts that the UK will be the fastest-growing major economy in Europe, the equity market rally will cool, and oil prices will fall.