A much better year lies in store for most of the world's major developed economies, although weak inflation will persist, complicating central banks' ability to get interest rates back to normal, Reuters polls forecast on Thursday.
As in the last few years, the United States looks set to the lead the way, with growth also quickening in Britain and Germany. However, Japan looks set to disappoint and the euro zone will probably lag again compared with its Western peers.
Emerging markets again look a mixed bag. Perhaps the main difference this year is that forecasts from the 300 or so economists polled across the world over the last week at least suggest little prospect of a return to recession in the euro zone, the world's largest trading bloc.
Overall, the poll showed the world economy will grow 3.6 percent this year compared with 2.9 percent in 2013. That would snap a three-year stretch of slowing global growth since the world economy first rebounded from the severe recession of 2009.
The last few months have been marked by steeply falling inflation in many of the top developed economies, with consumer prices rises in some cases far below stability targets set by their central banks. Although the poll suggested deflation itself looks unlikely, weak inflation will remain widespread.
Consumer prices are expected to rise tepidly in most of the countries polled — even in the euro zone, where inflation slowed to 0.8 percent in December.
"We're not forecasting a descent into outright deflation. Instead, we're highlighting the risk that inflation remains too low or, worse, that it continues to sink over the next two years," said Stephen King, group chief economist at HSBC, in its global outlook for the year.
Thursday's Reuters polls suggested mixed fortunes ahead for emerging markets. Mexico's ambitious reform agenda will start to pay off after a very disappointing 2013, but the recovery will not likely be as strong as previously hoped as Latin America braces for a bumpy year for local markets.
Turkey too is on course for a difficult year ahead, although growth prospects in South Africa look better in 2014. The consensus for the world's largest economy, the United States, was upgraded slightly compared with a poll last month. It is expected to grow 2.9 percent, up from 2.6 percent in the December poll and versus an estimated 1.9 percent in 2013.
"It seems we are putting the Great Recession further and further behind us," said Russell Price, senior economist at Ameriprise Financial Services. "Consumers have reduced debt, corporate balance sheets are in better shape. There are lots of positives that are going to help rather than hinder growth."
In Japan, the world's No. 3 economy, inflation will stay well below target, with the poll suggesting companies there are cautious about passing on their higher profits to employees — seen as vital for the country's economic revitalisation. Indeed, Japan's economic growth is expected to slow to just 0.7 percent for the 2014-15 fiscal year, compared with 2.5 percent for the previous period.
The euro zone, by comparison, looks a long way from getting to that point. While this year promises some modest economic growth — around 1.0 percent compared with a 0.4 percent contraction this year — the low level of inflation remains worrisome.
"Core prices pressures will remain low over the medium term," said Herve Amourda, economist at Societe Generale. "In addition, risks are broadly tilted to the downside over the medium term, as we have identified a strong (euro), falling commodity prices or even stronger deceleration in unit labour costs to be the major threats to our scenario."
Britain looks on course to lead the way in terms of economic growth among Europe's heavyweight economies, where unemployment looks set to fall at a faster pace than the Bank of England's expectations that underpin its monetary policy stance.
The UK economy is expected to grow 0.6 percent per quarter through to the middle of next year, the end of the forecast horizon and the highest forecasts to date.
Reuters will publish its economic outlook polls for the top Asian economies outside Japan next week.
International Monetary Fund chief Christine Lagarde said that growth in the global economy was picking up, but warned of the "rising risks" of deflation.
"Momentum strengthened in the latter half of 2013, and should strengthen further in 2014 — largely due to improvements in the advanced economies," Lagarde said in a speech at the National Press Club in Washington.
The IMF managing director, however, declined to put numbers on the growth rate ahead of next week's update of the Fund's official forecasts.
But she pointed out that global growth, five years after the financial crisis, remains below its potential of about four percent a year, resulting in a tame risk of inflation worldwide.
"With inflation running below many central banks' targets, we see rising risks of deflation, which could prove disastrous for the recovery," she said.
"Global growth is still too low, too fragile, and too uneven." Lagarde stressed that the 188-nation IMF can play "an especially valuable role" in fostering cooperation and coordination in the interconnected world.
"We need to continue to adapt and to reflect the changing dynamics of the global economy and our membership. That is why we need the continued support of our entire membership," she said, stressing the word "entire". Lagarde was peppered with questions from the audience about the US Congress's exclusion of an IMF funding measure that had been proposed by the Obama administration in a budget compromise reached late Monday.
Without the funding measure, the United States, the IMF's largest stakeholder, will continue to block key IMF quota and governance reforms approved in 2010.
The reform includes doubling the IMF's quotas, increasing its crisis-lending capacity; giving more voice to underrepresented dynamic emerging-market countries; and reducing the European representation on the executive board.
Lagarde said she hoped that Congress's decision is "a question of timing and not a question of a determination to exclude the IMF." She argued that the Washington-based IMF is a positive force in the global economy, promoting financial stability, and the United States, the world's largest economy, benefits from that.
The commitment to complete the reform was by the end of 2012, and two years later its prospects remain unclear as vital US support is lacking.
"I hope that sensible and commonsense judgment will prevail," she said.
"As a lead economy, as the key partner at the table, the United States of America are bound to support the institution." (Agencies) By Andy Bruce
(c) 2014 Arab Times Kuwait English Daily. All Rights Reserved. Provided by Syndigate.info, an Albawaba.com company
Original headline: World economy on recovery road, US set to lead way
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