Global Economic Outlook, Q4 2013

Read insights about the United States, Eurozone, Japan, China, The United Kingdom, India, Brazil, and Russia, plus a special section on "The impact of Fed tapering on emerging economies."

Things have certainly changed since our last report three months ago. Europe appears to be coming out of recession, China appears to be stabilizing, and the United States appears to be going back to square one. That is, after several months in which markets anticipated a shift in monetary policy, the Fed left policy unchanged. In Japan, the burgeoning success of Abenomics is jux­taposed against an impending tax increase. Finally, emerging markets, having seen a sizable slowdown in growth, and attacks on their currencies have been given a brief reprieve by the US Federal Reserve. Still, the short-term growth outlook remains modest at best.

This fourth quarter edition of the Global Economic Outlook offers timely insights from Deloitte Research economists about the United States, Eurozone, Japan, China, The United Kingdom, India, Brazil, and Russia. In addition, this issue features a special section called “The impact of Fed tapering on emerging economies: Struggling with the ebb.”

By Dr. Ira Kalish

United States: Over four years into the recovery—where are the jobs?
By Dr. Patricia Buckley

The US labor market is experiencing only moderate improvement, but a rebound in residential construction might be the spark that ignites stronger growth in 2014. However, the potential impact of congressional failure to provide a stable fiscal policy could pose a threat to the US economy.

Special topic: The impact of Fed tapering on emerging economies: Struggling with the ebb
By Navya Kumar and Akrur Barua

Many emerging economies have experienced a sharp fall in currency and capital markets because of the US Federal Reserve’s plans to taper quantitative easing. Differences between the current situation and the Asian financial crisis of the 1990s suggest that policymakers in emerging markets may have an opportunity to focus on reforms aimed at enhancing competitiveness and removing structural bottlenecks.

Eurozone: A bit of a recovery
By Dr. Alexander Börsch

A long recession may be coming to a close in the Eurozone, but growth remains less than spectacular. A slowdown in emerging markets, continuing troubles in Europe’s credit markets, and persistently high unemployment still pose risks to economic growth in the Eurozone.

Japan: Early signs are positive
By Dr. Ira Kalish

Japan’s performance in the wake of the new economic policy has actually been quite good. Growth has been strong, and various economic indicators—increased equity prices, a lower yen, increased inflation, and strengthening exports—look promising. However, risk stemming from the impending increase in the national sales tax persist.

China: Stable for now
By Dr. Ira Kalish

Strong industrial production, improving exports, and a rebound of credit creation suggest a stabilization of Chinese growth after a period of deceleration. On the other hand, the risk of credit expansion, the tools that the government might use to improve bank safety, and a property price bubble suggest that banking reform remains critical.

The United Kingdom: Optimism returns
By Ian Stewart

Things have changed in recent months, and the British economy appears to be on the mend. There is now concern that the housing market is exhibiting signs of a bubble. Positive external factors, including an easing of economic stress in Europe and a recovery in the United States, have played a role.

India: Domestic strength tested by intensifying global uncertainty
By Dr. Rumki Majumdar

Declining economic growth, high inflation, declining fiscal discipline, a widening external deficit, and diminishing business confidence are hampering India’s economic outlook. Moreover, a new central bank governor is focusing on inflation and financial stability rather than growth, so the best path forward for India involves structural reforms that have yet to be implemented.

Brazil: One quarter does not a year make
By Navya Kumar

Despite a rebound in growth in the second quarter, the outlook remains troubling because of slow growth in the third quarter, excessive inflation, and a deteriorating external balance. The central bank has tightened monetary policy in order to stabilize the currency and fight inflation, and the government is tightening fiscal policy in order to maintain fiscal probity. The primary hope for better performance may rest with prospects for freer trade, especially with the EU.

Russia: Deeper into the woods
By Akrur Barua

Slowing growth, weakening investments, and poorly performing exports are weighing down on Russia’s economy. Moreover, excessive reliance on hydrocarbons means that falling energy prices are harmful to growth. With inflation running relatively high, the central bank is not likely to significantly loosen policy. Furthermore, foreign direct investment has dried up, and funds are flowing out of the country.

Economic indices
GDP growth rates, inflation rates, major currencies versus the US dollar, yield curves, composite median GDP forecasts, composite median currency forecasts, OECD composite leading indicators

Global Economic Outlook, Q4 2013: Overview