Economic and Strategy Viewpoint

January 2014

In this month's viewpoint: Global: US growth pick up may be too much of a good thing, UK: New Year’s resolutions, Will emerging markets elect to grow? and Views at a glance.

28 Jan 2014

Keith Wade

Keith Wade

Chief Economist & Strategist

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Emerging Markets Economist

30 Minutes
Unstructured Learning Time

CPD Accredited
Global: US growth pick up may be too much of a good thing (page 2)
  • The US economy has strong momentum having shrugged off the government shutdown, and leading indicators suggest that growth will remain robust in the first quarter of 2014. Risks are still skewed to the upside of our 3% real GDP forecast with signs that capex may also join the party as shareholders become more positive toward companies who invest. 
  • Stronger growth will bring lower unemployment and our view is that the US Federal Reserve will be surprised by the pace of tightening in the labour market. Demographic trends suggest participation will continue to decline even as the economy strengthens, a view at odds with Fed projections. Any monetary policy decision would also depend on an assessment of labour market slack, but a tightening would begin to curtail activity and the focus on demographics is a reminder that the factors supporting strong US growth in the past are waning.
UK: New Year’s resolutions (page 7)
  • The UK should see GDP surpass its pre-crisis peak this year, but will do so with an over-reliance on housing and consumption. Meanwhile, the Bank of England needs to go back to basics. Forward guidance has brought nothing but confusion, and we look forward to the unemployment threshold being scrapped.
  • Finally, the government needs to be more honest with the underlying state of the public finances, while the proposed increase in the minimum wage looks risky. More fiscal tightening is on the horizon.

Will emerging markets elect to grow? (page 12)
  • Emerging markets have a busy election calendar this year. The Fragile Five all have elections, adding volatility to already febrile markets. The elections could be a catalyst for change in some, particularly India and Indonesia, but we see little cause for optimism elsewhere.
Views at a glance (page 17)
  • A short summary of our main macro views and where we see the risks to the world economy.