Can it be...Global Growth?
December 13, 2013
Senior Vice President City National Foreign Exchange Manager
Well, it’s that time of the year again, when somehow between holiday parties
and shopping, we somehow have time to ponder what will happen in the global
economy next year.
This next year is shaping up to be a little different to describe than most.
Typically, we can find 2-3 major themes that we expect to define the year ahead.
We believe that next year is best described as a river – the path downstream is
defined by what happens upstream.
We start with two words that we have not been able to use since 2008 – global
growth. This will be the first year since the Great Recession that forecasts
expect every major economy in the world to actually grow. Current consensus
forecasts for 2014 growth as reported by Bloomberg are 2.60% for the U.S., 1.00%
for the Euro area, 2.30% for the U.K., 1.50% for Japan, 2.30% for Canada and
7.50% for China.
Which growth prospects actually materialize will clearly define the first
parameter that investors watch – central bank policy. Of all central banks, the
Fed is still clearly the outlier most at risk of engaging in what can be loosely
described as anything close to “tightening.” Tapering is the first step to
tightening, and it is just a matter in which month will we start to see the Fed
begin its long trip down from the QE mountain.
Outside of the Fed, the best hope of seeing central bank tightening would be
in the U.K., which recently dramatically upgraded its prospects for the U.K.
economy. The big elephant in the European room is the European Central Bank,
which is doubtful to do anything in 2014 on the policy rate front. The same can
be said of the Bank of Japan, which will be continuing its mission to double the
monetary base by 2015.
The central banks of commodity-base economies are a bit more complex. Most
are right now on the sideline or in a mood to keep rates low, but if we did see
a decent pickup in global growth, then we cold see a rise in commodity prices
that would catch the attention of these central bankers.
My View: For the first time in several years, we have hope for a
truly global recovery. Next week, we will talk about where we think currencies
and global assets will trend in 2014.
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