20140211-NATIXIS-On_which_side_are_forecasters_erring__Will_global_growth_be_stronger_than_expected_or,_on_the_contrary,_will_it_dip_again__13页_397kb

Summary of FLASH ECONOMICS: "On which side are forecasters erring: Will global growth be stronger than expected or, on the contrary, will it dip again?"

Core Content

This document, titled "On which side are forecasters erring: Will global growth be stronger than expected or, on the contrary, will it dip again?" is an economic research report published by Natixis on February 11, 2014, No. 98. It examines the likelihood of global growth being stronger or weaker than the current consensus forecast and evaluates the potential factors influencing either scenario.

Main Forecast and Consensus

• The consensus expects a moderate global recovery in 2014-2015, with growth projected at 3.1% for 2014.
• The IMF forecasts even higher growth: 3.7% in 2014 and 3.9% in 2015.
• The report acknowledges that consensuses are often wrong and investigates which direction the forecast might be biased.

Potential for Stronger Growth

There are several factors that could lead to stronger-than-expected global growth:

• Corporate optimism and profitability: High corporate profits and increased optimism among businesses could drive stronger investment and employment growth (Charts 5A, 5B, 6).
• Low long-term interest rates: Expansionary monetary policies and low inflation expectations have kept long-term interest rates low, encouraging investment and boosting asset prices (Chart 8A, 8B).
• Continued strong growth in China: Despite being driven by urbanization, China's growth remains robust, with the construction sector contributing significantly to GDP (Chart 10C).

Potential for Weaker Growth

Conversely, three main mechanisms could lead to a dip in global growth:

1. Weak growth drivers in OECD countries:

   • Stagnant real wages (Chart 12).
   • Weak investment and declining corporate investment intentions (Chart 4A).
   • Stagnant global trade (Chart 3C).

2. Exacerbation of the emerging-country crisis:

   • Slower growth in major emerging economies (Brazil, India, South Africa, Turkey, Russia) due to falling commodity prices and production bottlenecks (Charts 13A, 13B).
   • Large external deficits and difficulty in financing them, leading to currency depreciation (Charts 14A, 14B, 15, 16A, 16B).

3. Weak euro zone recovery:

   • Despite some signs of improvement in exports and investment (Charts 18B, 18C), the recovery is too weak to restore economic solvency.
   • Rising real interest rates due to disinflation and weak fiscal and private solvency (Charts 19, 20A, 20B, 20C, 20D).
   • The deterioration in solvency poses a double threat to the Southern euro zone:
     • Renewed pessimism among investors regarding peripheral bonds.
     • Weaker-than-expected growth due to the negative impact of solvency issues on demand.

Conclusion

• The consensus forecast of moderate growth is considered reasonable.
• However, the report questions whether this forecast might be erroneous, as both stronger and weaker growth are possible depending on the evolution of key factors.
• The likelihood of stronger growth depends on renewed corporate optimism, strong Chinese growth, and low interest rates.
• The likelihood of weaker growth is influenced by stagnant wages, trade, the emerging-country crisis, and ongoing solvency issues in the euro zone.

Key Information

• Global growth in 2013: 2.4% (Consensus), 3.0% (IMF).
• Global growth in 2014: 3.1% (Consensus), 3.7% (IMF).
• Growth in China: Strong, with the construction sector accounting for nearly 20% of GDP and growing at 25% annually.
• Credit and investment trends: Credit growth is weak (Chart 2), and investment remains subdued in OECD countries (Chart 4A).
• Interest rates: Long-term interest rates are low in major economies, supporting investment and asset prices.
• Solvency issues: Affecting both public and private sectors, especially in the euro zone (Charts 20A, 20B, 20C, 20D).

Disclaimer and Legal Information

• This document is confidential and intended solely for the addressee(s).
• It is not an independent investment research report and is not a personalized investment recommendation.
• No liability is accepted by Natixis or its affiliates for the content or use of this document.
• The document is not an offer or solicitation for the purchase or sale of any security.
• It is subject to regulatory requirements in France, the UK, Spain, and Italy, and is only distributed to major U.S. institutional investors as defined by the SEC.
• No responsibility is accepted for the accuracy, completeness, or reliability of the information provided.