Global Economic Outlook

Deloitte Global Economic Outlook Q3 2014 (PDF)

The third quarter edition of the Global Economic Outlook offers timely insights from Deloitte Research economists about the United States, the Eurozone, China, Japan, India, Russia, Brazil, and the United Kingdom.
Picture from Deloitte Global Economic Outlook Q3 2014
Deloitte Global Economic Outlook Q3 2014

Deloitte Introduction by Dr. Ira Kalish

The global economy appears to be settling into a new normal of modest growth in developed econo- mies, stabilization of growth in emerging economies, and a decline in systemic risks emanating from policy mistakes. On the other hand, geopolitical risks appear to have reared their heads lately to a degree we haven’t seen in some time. Troubles in Ukraine, Iraq, and the South China Sea have led to concern about the potential impact on economic outcomes. Still, financial market volatility has been unusually low lately, which suggests that the global investment community is either less concerned about potential risks—or perhaps, just a bit jaded by the events of the past decade. In any event, our global group of economists has interesting opinions as to where we go from here.

In our first article, Patricia Buckley takes a decidedly optimistic stance on the outlook for the US economy. Although the economy took a sharp dive in the first quarter, Patricia notes that this was prin- cipally driven by very bad weather. The factors that drive longer-term growth remain positive. In fact, removing the negative impact of trade and inventory accumulation (both of which were especially hurt by the weather) demonstrates that domestic demand continued to grow in the first quarter.

Alexander Börsch writes that the Eurozone is “sending mixed signals.” On the one hand, sentiment is improving. On the other, deflation remains a risk, and growth is clearly insufficient. Alexander says that the future performance of the Eurozone will depend, in large part, on the effectiveness of the new mon- etary policy of the ECB. Moreover, he notes that declining productivity growth and an aging population are reducing the ability of Europe’s economy to grow.

In our third article, I discuss how the Chinese government is struggling to balance a desire to main- tain adequate growth with a desire to avoid further financial imbalances. As such, the government has eased restrictions on credit while, at the same time, attempting to slow further growth of the shadow banking system. In addition, I discuss the potential for a bursting of the housing bubble and what this would mean for policymakers.

Next, I discuss the Japanese economy. The long-term success of “Abenomics” will depend on the degree to which the government engages in deregulation and free trade. As such, the government’s recent announcement of more specific plans warrants interest. In this article, I examine these proposals and discuss their potential impact.

In our next article, Rumki Majumdar examines the new situation in India. Specifically, she notes the historic results of the recent election. She also discusses the general plans of the new government for eco- nomic reforms. Although the election boosted confidence, as evidenced by equity prices, the economy still faces considerable challenges, including inflation. Central bank policy remains focused on inflation.

Rumki notes that monetary policy alone is not sufficient to shift economic performance in India.

Brazil is the focus of our next article by Akrur Barua. Akrur examines a litany of unfortunate economic indicators all pointing to disappointing per- formance. This comes just as Brazil hosts the World Cup. Moreover, policy has not been supportive of growth as the central bank must focus on infla- tion, which remains too high. Akrur concludes with a discussion of what a future government must do in order to turn the Brazilian economy around.

As for Russia, Akrur Barua looks at some of the longer-term issues that will influence the economy’s performance. He begins by discussing Russia’s effort to shift the focus of trade away from Europe and toward China. This will be critical because, as Akrur notes, the outlook remains troubled. Akrur discusses the current weakness of the Russian economy, especially the decline in investment and the need for the central bank to maintain a relatively tight policy to fight inflation.

Finally, Ian Stewart offers his take on the British economy. Ian notes the considerable strength of the economy. He discusses how this recovery appears to be quite sustainable, especially given the strength of consumer spending and business investment. On the other hand, he examines the growth of consumer debt and the risk that this creates for the financial system—a risk recently enunciated by the governor of the Bank of England.


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