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Global growth 2014

Global growth projections made by many researchers, including the IMF, predict that the US will be the key driver and Europe will come out of recession.

The projections put global growth to average between 3.4-3.6% next year, from this year’s 2.9%.

The US Industrial production has ticked up for November, to 1.1%. It is the biggest jump this year and has shown a robust recovery with momentum on the upside. This has given a boost to the predictions that the US economy could accelerate for next year.

Other data have shown that there is a pick-up in hiring, more job openings and better-than-expected retail sales. There are still concerns around increasing consumer credit, declining personal income, and uneven home sales. The December Markit manufacturing PMI showed a dip to 54.4, from an expectation of 55.

In the Eurozone, manufacturing activity looking up though the service sector fell to a four-month low. The December Markit manufacturing PMI showed a slight improvement to 52.7 from 51.2, but the service sector PMI dropped to 51 in December, from 51.2 in November. This shows, although the financial conditions have stabilised, the region remains vulnerable. This would also translate to the policy remaining accommodative.

China’s data indicates that the economy is slowing. Chinese officials have stressed they will strive to maintain a stable growth, while implementing reforms after last week’s meeting. Although the actual growth target was not mentioned, it has been widely interpreted that the 7.5% target will remain for 2014. Yesterday, the ‘flash’ manufacturing index showed a decline to 50.5 in December from the prior month of 50.8.

In Japan, criticisms of Abeonomics loomed for a year after Prime Minister Abe wowed investors with his aggressive reforms. However, yesterday the Tankan survey showed that companies are not picking up spending and staying cautious. Japan’s Q3 GDP showed a drop from 0.5%, to 0.3%, which adds to the concerns that after the initial surge of investor confidence, this could wane next year. The government faces an uphill battle on their attempt to shake-up labour laws and the much debated consumer tax hike, coming into effect in 2014, which is likely to help lower GDP growth. While foreign investors remain optimistic on Japan’s course out of stagflation, Japanese investors remain cautious.

In summary, the perception of accelerated growth for next year is most likely to turn-out like this year, where there are pockets of growth in certain countries. The main drag that has been in the Eurozone and the risk of the region deteriorating and a drag on the global economy appears to be diminishing. The challenge to stabilising the markets is always keeping investors’ confidence while reform is being processed.

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