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Can it be...Global Growth?

December 13, 2013

David Atkinson
Senior Vice President City National Foreign Exchange Manager

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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.

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make an independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

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