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Top 3 Trends for Economy, Finance & Trade in 2014

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Euromonitor International has identified three key global trends for Economy, Finance and Trade in 2014. There are several trends emerging which suggest that some of the more difficult decisions made in the last year are finally showing dividends. Growth will largely be driven by developed economies in 2014 and “mega-trade deals” will become even more widespread while downside risks such as weak currencies in emerging markets may suggest that the recovery in the west could come at the expense of economies in the developing world. 2013 had a shaky start with the US fiscal cliff, eurozone bailouts and weak trade growth weighing on prospects across developed and developing economies, particularly given the austerity measures which characterised 2012. 2014 is set to be a critical year in the global recovery process, with clear signs that real economic growth is becoming more robust and the structural problems, which previously thwarted the world’s economies, are being addressed.

1. Real GDP Growth Will Be More Balanced with Developed Economies Back in the Driving Seat

  • World real GDP growth is forecast to be 3.7%, a 0.8 percentage point increase on the 2013 figure. Developed economies are expected to grow by 2.0% in 2014 in real terms, their fastest average rate of growth since 2010, while emerging economies are forecast to grow by 5.2% in real terms, their fast rate of growth since 2011. A positive outlook for the USA, in the shape of lower unemployment rates, the end of its quantitative easing programme and real GDP growth of 2.5% on the cards, has raised hopes that the world’s largest consumer market will drive the recovery on both sides of the Atlantic in 2014;
  • The eurozone will also return to positive output growth in 2014, a sign that the worst of the sovereign debt crisis is over. Ireland, one of the eurozone members that required a bailout, has now exited its bailout programme and while Portugal, Greece and Cyprus are still receiving funds from their rescue packages, attention has now firmly turned toward creating a eurozone banking union which should engender greater stability and security across the single currency.

Real GDP Growth: 2009-2014

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), World Economic Outlook (WEO)

Note: Data for 2013 and 2014 are forecast.

2. Global Trade Deals are Getting Broader and More Inclusive

  • In 2013 we saw weak trade growth threaten the long-term economic outlook for emerging economies that depend on demand from the west for their goods and services. We saw an increase in developing economies turning inward, taking advantage of growing middle classes with rising disposable incomes. This “South-South” trade is a key element of the renewed trade growth Euromonitor International is forecasting for 2014 and into 2015, as well as being something that major developed economies are looking to benefit from in the form of wider and deeper free trade agreements (FTAs), known as “mega trade deals”;
  • Examples of mega trade deals includes the Trans-Pacific Partnership (TPP), the Association of South East Asian Nations’ Free Trade Agreement (AFTA) and the EU-US trade deal which are all set to grow considerably in 2014. These deals are all prime examples of countries looking outside of the traditional trade links for new opportunities and in the long-term they should foster greater openness to trade and foreign direct investment (FDI) globally.

3. Weakening Currencies in Developing Economies Expose Vulnerabilities for 2014

  • Many key emerging markets are facing further currency devaluation in 2014 thanks to capital flight and slowing FDI as investors in the west regain confidence in economies such as the USA, Japan and the UK. The announcement by the US Federal Reserve in 2013 that it was set to wind down its QE programme has contributed to this weakening as investors sell off equities, bonds and currency holdings in developing economies as funds in the USA become harder to come by;
  • A weak currency can be a blessing in disguise as it does make a country’s exports relatively cheaper but it widens the current account deficit as imports are effectively more expensive. This is a trend we’re seeing in some of the biggest and fastest growing consumer markets in the world, such as Indonesia, India, Turkey and Brazil.

The outlook for 2014 is certainly brighter than it was at the beginning of 2013, however, as these trends show, the coming 12 months will not be without their risks.

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