Global Economic Outlook 2014

May 2014 update

 

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Slow Global Growth to See a Rebound in 2014

Faster Increase in Public and Private Investment and Policy Reform to Drive Productivity Can Counter Long Term Slowdown

Main results:

The outlook for 2014 over 2013:

  • Global growth of Gross Domestic Product(GDP), adjusted for inflation, will rebound from 2.9 percent in 2013 to 3.3 percent in 2014 – a slight downward revision from our projection of 3.5 percent, in February.
  • Across mature economies, the 2014 growth outlook has improved significantly to 2.0 percent growth in 2014, compared to 1.3 percent in 2013.
  • The uptick is primarily due to the Eurozone which is expected to return to a positive growth rate of 1 percent in 2014, moderately picking up the pace from a weak recovery. The United States is the second largest contributor (after China) to the somewhat stronger outlook for 2014, where growth is expected to increase from 1.9 percent in 2013 to 2.3 percent in 2014. However, due to a weak start of the year following bad winter weather, the outlook for 2014 has been revised down to 2.3 percent from our earlier forecast of 3.0 percent in 2014.
  • GDP growth in emerging and developing economies as a whole is projected to decline slightly by 0.2 percentage point from 4.9 percent in 2013 to 4.7 percent in 2014. The slower increase is primarily driven by China, which in our projections of the official growth rates will continue to slow down from 7.7 percent in 2013 to 7 percent in 2014. However, structural and policy challenges continue to weigh heavily on China’s economic transformation, which creates a significant margin of uncertainty on this projection.
  • Among the other emerging markets, Brazil and Russia, Central Asia and South East Europe are also expected to witness a deceleration in growth rates, while India, Mexico and other developing Asia are likely to see a slight improvement in 2014, up from a weaker growth performance over 2013.

Projections for2014-2019 and 2020-2025

  • Overall, the world’s largest mature and emerging economies still face many structural flaws and policy constraints that hinder more investment and faster productivity growth, making the medium-term outlook for a significantly faster path of global growth more uncertain.
  • The medium-term outlook for the U.S. and other mature economies remains slightly more positive than their long-term trend, as these economies still have some way to go toward closing remaining output gaps. The U.S. is therefore expected to grow at 2.4 percent, on average per year, and the Euro Zone at 1.2 percent from 2014-2019. While the Eurozone is expected to maintain the same growth rate during 2020-2025, the U.S. is expected to see a decline in its long-term growth to 1.7 percent.
  • The medium term slowdown in the growth trend of emerging and developing markets is more dramatic. China needs to rebalance its economy from rapid investment-intensive ‘catch-up’ growth towards more a consumption- and services-driven economy. India, Brazil, and Mexico face major structural challenges to unlock labor and product markets and create a more efficient resource allocation. As a result the structural ‘speed limits’ of these economies are likely to reduce emerging market growth from 4.3 percent, on average per year, from 2014-2019 to 3.2 percent from 2020-2025.
  • Emerging markets constituted just below half of total world GDP in 2012, when converted to US$ at purchasing power parities, up from about one third in 2000. In the next decade this shift will continue at a much slower speed. By 2025, emerging markets will capture just over half of world GDP, with China clearly being the largest economy in the world.
  • The upsides for the medium term growth outlook for the global economy are a significant faster increase in public and private investment and an acceleration in the economies’ reform agenda to accelerate productivity growth (see The Conference Board’s Global Economic Growth Scenarios and Chief Economist’s Straight Talk®).

Global Outlook for Growth of Gross Domestic Product, 2014-2025

Note: projections are based on trend growth estimates, which – for the period 2014-2019 – are adjusted for adjustments from remaining output gaps
*Europe includes 27 members of the European Union (excluding Croatia) as well as Switzerland and Norway.
**Other advanced economies are Australia, Canada, Iceland, Israel, Hong Kong, South Korea, New Zealand, Singapore, and Taiwan Province of China.
***Southeast Europe includes Albania, Bosnia and Herzegovina, Croatia, Macedonia, Serbia and Montenegro, and Turkey.
Source: The Conference Board Global Economic Outlook 2014, May 2014 update
https://www.conference-board.org/data/globaloutlook.cfm

Global Outlook for Growth of Gross Domestic Product, 2013-2025

 ACTUAL GROWTH 2010-2012ACTUAL GROWTH 2013FORECAST GROWTH 2014PROJECTED GROWTH 2014-2019TREND GROWTH 2020-2025
United States 2.4 1.9 2.3 2.4 1.7
Europe* 1.1 0.1 1.4 1.4 1.3
of which: Euro Area 0.9 -0.5 1.0 1.2 1.2
Japan 2.0 1.5 1.8 1.0 0.6
Other mature** 3.7 2.6 3.0 2.4 1.7
Mature Economies 2.0 1.3 2.0 1.9 1.4
           
China 9.2 7.7 7.0 5.9 3.5
India 6.8 4.6 5.0 4.8 3.6
Other developing Asia 5.6 4.5 4.9 4.8 4.2
Latin America 4.3 2.1 2.6 2.9 2.9
of which: Brazil 3.5 2.3 1.8 2.9 2.8
of which: Mexico 4.4 1.1 3.1 2.9 3.1
Middle East & North Africa 4.0 1.8 3.0 2.9 2.9
Sub-Saharan Africa 4.8 3.8 5.0 3.9 3.9
Russia, Central Asia and Southeast Europe*** 4.6 2.1 2.0 1.8 1.3
Emerging Market
and Developing Economies
6.4 4.9 4.7 4.3 3.2
           
World Total 4.0 2.9 3.3 3.1 2.4

Note: projections are based on trend growth estimates, which – for the period 2014-2019 – are adjusted for adjustments from remaining output gaps
* Europe includes 27 members of the European Union (excluding Croatia) as well as Switzerland and Norway.
** Other advanced economies are Australia, Canada, Iceland, Israel, Hong Kong, South Korea, New Zealand, Singapore, and Taiwan Province of China.
*** Southeast Europe includes Albania, Bosnia and Herzegovina, Croatia, Macedonia, Serbia and Montenegro, and Turkey.
Source: The Conference Board Global Economic Outlook 2014, May 2014 update
https://www.conference-board.org/data/globaloutlook

Distribution of World GDP in 2000, 2012 and 2025

Note: GDP shares are converted to U.S. dollars using purchasing power parities.
Source: The Conference Board Global Economic Outlook 2014, May 2014 update

About The Conference Board Global Economic Outlook

The Conference Board Global Economic Outlook 2014 provides projections for the output growth of the world economy for 2014, 2014-2019, and 2020-2025, including 11 major regions and over fifty individual mature and emerging economies. The Conference Board outlook takes the dynamics of factor inputs (savings, investment and employment) and demographics of each country into account. The projections are based on a growth accounting model that estimates trend growth as the contribution of the use of labor, capital and productivity to the growth of GDP. While labor growth is projected using demographic information such as working age population, capital and productivity growth are estimated on the basis of a wide range of related variables during past periods. The trend growth rates that are obtained from this process are adjusted for possible deviations between actual and potential output. This approach distinguishes The Conference Board outlook from other projections as it helps identify underlying structural changes in the economy by extending projections based on a growth accounting model, looking at the contributions of labor, capital and productivity, over more than a decade. Most forecasters only focus on the next year or two, while the International Monetary Fund provides an outlook that projects five years ahead. The Conference Board’s global outlook is complemented with a series of growth scenarios for six major regions, including the United States, Europe, China, India, Southeast Asia and Brazil.

Methodological Notes

  • Short-term (2014) projections are based on The Conference Board U.S. Economic Forecast, The Conference Board Leading Economic indexes (LEIs) for 11 countries/regions, and secondary sources, such as the World Economic Outlook (International Monetary Fund), the Economic Outlook (Organization for Economic Cooperation and Development), European Commission and Congressional Budget Office.
  • Medium-term (2014-2018) and long-term (2019-2025) projections are based on a growth accounting model, looking at the contributions of labor, capital and total factor productivity to growth. Growth in labor is approximated by the growth in working age population. Capital growth and total factor productivity growth are estimated by system of equations which are largely based on relevant past-period variables and some economic variables.
  • The projected GDP growth, based on the growth accounting framework, is considered relative to measured trend growth of an economy. Our optimistic and pessimistic scenarios are based on the deviation of capital growth and total factor productivity growth from their respective trend growth.
  • The calculation of measures of regional and global GDP growth requires levels of GDP to weigh the growth rates of individual countries and regions by their size of GDP. The country and region GDP weights are current weights, which are the average for the beginning and the end of each period, and which are benchmarked on purchasing power parity (PPP)-adjusted GDP from Penn World Table 7.0.

Contact Us

Abdul A. Erumban
Senior Economist
Economics Department
E-Mail: ted.geo@conference-board.org

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