Despite geopolitical turmoil and global economic uncertainties, both the global and U.S. economy appear to be at an inflection point in mid-2014 to a somewhat stronger growth rate despite risks, according to BNY Mellon Chief Economist Richard Hoey in his most recent Economic Update.
“After an initial global growth surge early in the expansion reflecting an easing financial crisis and aggressive Chinese stimulus, global growth has been running at a sustained but sluggish pace for several years,” said Hoey. “This has extended through the first half of 2014 since two major countries (the U.S. and Japan) were roughly flat in the first half of 2014 while the initial phase of the fragile European recovery from its double-dip recession was quite tentative.”
“There has been a clear improvement in the U.S. labor market in recent months,” Hoey continued. “We expect mid-2015 to represent the transition from five years of U.S. economic growth slightly above 2% to three years of three percent growth in a ‘three-for-three’ pattern. The expected acceleration does not reflect major new sources of strength but rather the fading of several drags, including the fiscal tightening and private sector deleveraging. Thus we continue to expect an ‘eight-year economic expansion’ (2009 to 2017) in the U.S.”
“Geopolitical turmoil has been occurring in a number of locations and appears to have worsened recently. We are hopeful that a major disruption in the flow of oil from Iraq can be avoided, given the location of the Iraqi oil fields. We do expect that there will be continued worry about the flow of natural gas from Russia to Europe this winter. Those worries could hold back confidence in Europe over the next several months even if a major disruption of natural gas supplies to major European countries this winter can be avoided, which is our expectation,” Hoey concluded.
Other report highlights include:
- China Sustained Expansion Expected – Contrary to a talked about “Chinese financial meltdown scenario,” Hoey expects a sustained expansion and a gradual downshift in Chinese trend growth over the coming years.
- Japanese Expansion Resuming – Japanese real GDP growth should be reported to be roughly flat in the first half of 2014 in a very volatile pattern, according to Hoey.
- European Recovery Sluggish but Sustained – While the Ukraine conflict and associated sanctions should weaken Russian demand for imports from Europe and raise uncertainties about the outlook for the European economy, the most likely case for Europe is sustained economic recovery at a sluggish pace over the next several years according to Hoey.