Global economy resilient to political uncertainty
OCTOBER 28, 2013
RECENT NEWS HEADLINES HAVE BEEN DOMINATEDBY POLITICAL TURBULENCE.
Above all, the deep divide inthe United States Congress has helped increase economicpolicy uncertainty. Other factors are a degree of uncertaintyabout the formation of a new German government and a newwave of protests against fiscal austerity in southern Europe.Geopolitical tensions in North Africa and the Middle East arestill cause for concern, especially when it comes to dealingwith Syria’s chemical weapons.
DESPITE THESE CONCERNS, FINANCIAL MARKETREACTIONS HAVE BEEN RATHER MODEST.
By allaccounts, the effects on the real economy are notespecially significant. In recent weeks, we have postedcountry/regional reviews (Macro Updates) using incomingeconomic statistics and have published a new issue of
Eastern European Outlook
. Our main conclusion is thatthe data have followed our expectations in the Augustissue of
. The biggest change concernsan upward revision in Japanese growth. As earlier, weexpect global economic growth, measured in GrossDomestic Product (GDP) adjusted for purchasing powerparities (PPP), to climb from 3.2 per cent in 2013 to 4.0per cent in 2014 and 4.2 per cent in 2015.
OUR FORECAST IS STILL THAT US GROWTH WILLSPEED UP DURING THE NEXT COUPLE OF YEARS
andthereby serve as an important driver of the worldeconomy. The direct effect of the October partialshutdown of US federal government operations will be tolower the annualised fourth quarter GDP figure by anestimated 0.5 percentage points. For the first time in 17years, Congress failed to reach a budget agreement intime, accentuating the deep divisions in American politics.Although our main scenario is that a long-term budgetand debt ceiling agreement can be reached early nextyear, the risk picture has changed. In the August issue of
, we estimated that the risks to our mainscenario were symmetric, with a 20 per cent probability ofboth a stronger and weaker economic scenario. Becauseof the new US political situation, we have raised theprobability of a worse outcome to 25 per cent. We havealso changed our estimate of when the Federal Reservewill start cutting back on its monthly securities purchases.Because of greater economic policy uncertainty and moremixed economic signals, we now expect “tapering” to beannounced after the Federal Open Market Committee(FOMC) meeting in March 2014.
IN THE EURO ZONE, ECONOMIC INDICATORS ARESTILL POINTING TOWARDS A WEAK RECOVERY.
Thecomposite purchasing managers’ indices (PMIs) in thefour largest countries
Germany, France, Italy and Spain
have converged and are now close to the expansionthreshold of 50. After GDP growth of 0.3 per cent in thesecond quarter, we expect somewhat slower growthduring the second half of 2013. Measured as annualaverages, GDP will shrink by 0.5 per cent in 2013 and thenincrease by 0.8 per cent in 2014 and 1.7 per cent in 2015.In recent months, unemployment has been at 12.0 percent: a historically high level, but a marginal downturnfrom the peak of 12.1 per cent in prior months. In severalcrisis-hit countries, however, lower labour forceparticipation rather than more jobs is the reason whyunemployment has stopped climbing. Inflation wasmeasured at 1.1 per cent in September, and we expectcontinued low price pressure.
Global GDP growth
Y-o-y percentage change (brackets: August 2013
2012 2013 2014 2015
United States 2.8 1.6(1.6) 3.3(3.3) 3.7(3.7)Japan 2.0 2.0(1.9) 1.9(1.4) 1.3(1.0)Germany 0.7 0.5(0.5) 1.7(1.7) 2.0(2.0)China 7.7 7.7(7.5) 7.4(7.4) 7.0(7.0)India 5.1 4.7(5.0) 5.5(5.6) 6.0(6.0)United Kingdom 0.2 1.5(1.5) 2.3(2.3) 2.6(2.6)Euro zone -0.6 -0.5(-0.5) 0.8(0.8) 1.7 (1.7)Nordic countries 1.0 0.6(0.8) 2,4(2.4) 2.6(2.5)Baltic countries 4.3 3.3(2.9) 3.7(3.8) 4.2(4.4)
OECD 1.4 1.2(1.2) 2.5(2.4) 2.8 (2.8)
Emerging markets 4.9 4.8(4.8) 5.3(5.3) 5.4(5.4)
The world, PPP*
3.4 3.2(3.2) 4.0(4.0) 4.2(4.2)
Source: OECD, SEB
* Purchasing power parities
EVEN THOUGH THE EURO ZONE RECESSION IS NOWOVER,
the region remains a weak link in the worldeconomy. Such figures as GDP growth, unemployment,competitiveness and public sector budget balances are
moving in the right direction
, but they are still at
. Fiscal austerity and credit marketdisruptions will hamper euro zone economies for years to