The international economic outlook: improve-
ment in Europe, some slowing in emerging
In general, the global economic outlook suggests there
will be some rebalancing between regions. Economic
vigour is slowly returning to the United States and
Europe, and this will take deeper root in 2014. This
contrasts with emerging economies, particularly in
Asia, where there are signs of weakness in the cycle,
although it is probable that they will continue to drive
economic growth in relative terms over the next few
years. In the most dynamic emerging regions, such as
China and India, stabilisation of commodity prices and
the expected tightening of funding conditions suggest
lower potential and cyclical growth.
One factor that has contributed to increasing prices and
trading volumes on stock markets since September has
been the improved performance of developed econo-
mies since the second quarter of 2013. This is particularly
true of the United States and Europe, where inflationary
pressures still remain subdue Other significant factors in
these two areas include: continuing expansionary mone-
tary policy, which is reducing the long-term returns on
public and private bonds; the attractive “price/book
value” of many leading advanced-economy companies;
and the reconfiguration of the portfolios of large interna-
tional funds and fund managers, reducing their exposure
to emerging markets in the face of increased currency
risk, in favour of equities denominated, mainly, in euros.
In broad-brush terms, the economic situation and
outlook in which stock markets are operating is currently
as follows:
The IMF estimates global economic growth at 3.0%
in 2013, rising to 3.7% in 2014 (up seven tenths of a
point), mainly due to increased demand for invento-
ries and a rebound in exports in emerging markets.
The BRICs grew by 5% in 2013 and are expected to
grow by 5.5% in 2014. Latin America grew by 2.6%
in 2013, with 3.0% growth forecast for 2014. Growth
forecasts for the United States and Europe have been
revised upwards, although 2015 US growth is forecast
at 3%, due to a tightening of the fiscal stance. The
Eurozone shrank by 0.4% this year, with 1.0% growth
expected for 2014.
The US economy remains a focal point. 2013 was
a good year, with growth of 1.9% and unexpected
increases in inventories in the second half of the
year. 2.8% growth is forecast for 2014. Internationally,
expectations of the timing and speed of withdrawal
of monetary stimulus in the US are affecting financial
markets. The expected gradual return to normal of the
FED’s monetary policy is already materialising, with its
debt purchases slowing.
Growth in Japan has been boosted by “Abenomics”,
with a more gradual slowdown than expecte 2013
growth at 1.7% year-on-year came in below expecta-
tions. 2.4% growth is forecast to be 2.4%. Rising prices
endorse the 2% inflation target, as a result of aggres-
sive expansionary monetary policies.
The Eurozone reported 0.3% GDP growth in the
second quarter of 2013.Year-on-year growthwas 1.1%.
Core European countries can be said to be starting to
show signs of recovery. The September manufacturing
activity index was over 50 points, close to its highest
level for two and a quarter years.
The European Commission has launched a review of
Germany’s excessive trade surplus, which exceeds 7%
of GDP. Measures have been requested to increase
salaries and boost domestic consumption to enable
the major adjustment efforts in periphery Eurozone
countries to be supported by exports to Germany,
whose exports have swamped other European
In order to progress towards a situationmore consistent
with the meaning of full European Union, financial
fragmentation needs to be reduced to make the trans-
mission of monetary policy more effective. At the
same time, more decisive steps are needed towards
real Banking Union
The Market Environment
Report 2013
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