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he world economy continues to move slowly out of the recovery room from the great recession of 2008-09, with still a number of bumps and bruises. This is the main message coming out of the IMF and World Bank Spring Meetings in Washington DC this weekend. While US economic growth remains moderate, the Eurozone is suffering from a tepid recovery and near deflation. At the same time, Chinese growth is slowing on lower export demand and excessive leveraging and Emerging Markets (EMs) continue to adjust to the negative repercussions of the tapering of Quantitative Easing (QE). Overall, the global growth picture remains mixed, with only the GCC (particularly Qatar) and Sub-Saharan Africa registering strong growth and a positive outlook.

Latest QNB Group Growth Forecasts

(Real GDP growth rates, % change)

The World Economy On a Bumpy Road to Recovery

Sources: IMF estimates and QNB Group forecasts

The US economy witnessed a slow start in the first quarter of 2014. Unusually cold weather has impacted construction activity and housing, while manufacturing and consumer sentiment remained moderately strong. A large trade deficit is also likely to dent economic growth. Looking ahead, the full implementation of QE tapering in the second half of 2014 is likely to keep growth moderate. Overall, QNB Group expects US economic growth of 1.5%-2.0% in 2014-15.

The Eurozone crisis seems to be finally over but challenges remain. On the positive side, the Eurozone periphery (Greece, Ireland, Portugal and Spain) is clearly showing a strong recovery, which is leading to lower bond spreads and higher equity prices. On the negative side, the Ukraine crisis and very low inflation (0.5% in March 2014, the lowest since November 2009) could derail the fragile recovery. Without additional monetary easing by the European Central Bank, growth is likely to remain below 1% in 2014, potentially rising to 1.0-1.5% in 2015.

China has so far accounted for more than half of global growth since 2009. However, its growth momentum probably slowed in the first quarter of 2014 on lower export demand and excessive leveraging. As a result of an unusual slowdown in global trade, Chinese manufacturing virtually halted in February 2014. At the same time, concerns about excessive lending practices and shadow banking have made credit harder to get. The Chinese authorities have responded to this slowdown by announcing an accelerated public investment program, which should help maintain the growth momentum in the range of 7%-7.5% in 2014 and 7.5%-8.0% in 2015.

EMs are suffering from a significant economic slowdown brought about by the negative repercussions of QE tapering. In order to limit capital outflows and restore investor confidence, most EMs have had to tighten macroeconomic policies. As a result, growth has significantly weakened in countries like Brazil, India, Russia, South Africa, Thailand, Turkey and, to a lesser extent, Indonesia. This is likely to continue as QE tapering is fully implemented and long-term interest rates in advanced economies start rising. EM growth will therefore slow to an average 4.0%-4.5% in 2014 and 3.5%-4.0% in 2015.

Against this global trend, growth in the GCC region continues to strengthen. A strong push for diversification through strong infrastructure spending is pushing up non-hydrocarbon growth. Qatar is leading the region with projected double digit growth in the non-hydrocarbon sector, leading to 6.8% overall growth in 2014 and 7.8% in 2015. Overall, growth in the GCC region is expected to average 4.5%-5.0% in 2014 and 5.0%-5.5% in 2015.

Last but not least, Sub-Saharan Africa continues to be the fastest growing region. Following the much anticipated rebasing of its GDP, Nigeria has become the biggest economy in the subcontinent (26th largest in the world) at USD509bn in 2013. It is expected to grow nearly 8% in 2014 and 7% in 2015 on a strong diversification drive. Large investment spending is also boosting growth in countries like Ghana, Mozambique and Tanzania.

On the other hand, conflict in Central African Republic, South Sudan, and the Democratic Republic of Congo is hampering economic development. Overall, the subcontinent is expected to grow by 6.5% in 2014 and 7.0% in 2015.

Overall, the global growth picture continues to be mixed. While advanced economies are slowly recovering from the global recession, their recovery looks fragile and still bumpy. China’s growth momentum is slowing, but the authorities have already taken measures to address the slowdown. EM growth is likely to weaken further in 2014 on tighter macroeconomic policies and the negative impact of further QE tapering. The only bright spots remain the GCC and Sub-Saharan Africa. Hopefully, no further bumps will derail the weak global recovery.

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