Predictions 2014: Developed markets to drive global growth, says Morgan Stanley

This is the second part in our three-part series of predictions for the global economy in 2014.

This set of predictions comes from Morgan Stanley’s two reports: the 2014 Global Macro Outlook and  Asia Pacific Economics Outlook 2014: Another Challenging Year Ahead. Both reports were released in early December.

One of the main points that Morgan Stanley highlights in both reports is that global GDP growth is expected to improve on the back of improving growth in the developed economies.

Global GDP growth is expected to improve to 3.4% in 2014, up from the 2.9% growth estimated in 2013.  “This improvement in global growth remains centred around accelerating growth in DM (developed markets)”, the 2014 Global Macro Outlook notes.

As Morgan Stanley notes, 2014 marks the fifth year of patchy global economic growth after the global credit crisis. If everything goes according to plan, 2014 could be the year when global economic growth makes the transition to becoming safer and more sustainable.

“Sounder, safer and more sustainable means a developed market expansion that is less dependent  on QE (quantitative easing), ZIRP (zero interest rate policy) and fiscal stimulus, and increasingly driven by private consumption and capex (capital expenditure) and supported by a normalisation of the credit mechanism,” the report notes.

However, making that transition will still require substantial support from central banks. “With global inflation likely to remain very low for longer, we forecast continued accommodation by developed market central banks,” the report adds.

Asia’s (excluding Japan) GDP growth, however, is forecast to stay flat at 6% in 2014 as domestic and external demand face challenges, according to the investment firm’s regional economics team.

That rate is lower than the 8.1% average growth rate seen over the past 10 years for the region. Growth in 2014 is expected to slow in China, Hong Kong and Indonesia, in particular.

Morgan Stanley estimates most countries in the region will grow at a slower pace in 2014 compared with their respective 10-year average growth rates. For growth rate estimates for some key Asian countries, take a look at the chart below.

GDP2014-1

Inflationary pressures are forecast to decline in India and Hong Kong in 2014, while the central bank of Indonesia is predicted to hike the policy rate by 25 basis points, lifting the benchmark policy rate to 8%. Expect interest rate hikes in Thailand, South Korea and Taiwan.

Across the region, during the financial crises of the past few years, policy makers also focused their attention on lifting domestic demand as demand for their exports sagged.

The boost in domestic demand, however, was driven largely by loose monetary and fiscal policies that have eroded productivity and regional savings while increasing macro-stability risks, according to Morgan Stanley.

“We believe that it will be increasingly difficult for the region to sustain the growth in domestic demand in the absence of policy reforms,” the report notes.

Finally, the transition to more sustainable global growth requires the completion of five key economic transitions in 2014. Those five transitions will be the subject of the final post in the mini series on economic forecasts for 2014.

[Image Credit]

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3 thoughts on “Predictions 2014: Developed markets to drive global growth, says Morgan Stanley

  1. Pingback: Predictions 2014: Five tricky transitions the global economy will need to navigate | Wall of Money

  2. Pingback: Developed nations will drive global growth in 2014. But what are the key risks? | Wall of Money

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