1. Master Template1 Global forecasting service Economic forecast summary – February 2014 www.gfs.eiu.com

2. We have upped our 2013 GDP estimate to 1.9%. Momentum in late 2013 supports our view of stronger growth in 2014. We maintain our forecast at 2.6% with risks to the upside. Government spending will support economic growth in 2014 for the first time since 2010. The US Fed started scaling back its bond buying programme in January 2014. This will lead to a rise in government bond yields and mortgage rates. The Fed will employ forward guidance in order to exert downward pressure on short-term interest rates.

3. Euro zone growth fell back to only 0.1% in the third quarter from 0.3% in the second. But the region has emerged from recession and we have raised our 2014 growth forecast to 1.1%. The ECB’s decision to cut its main policy rate by 25 basis points to 0.25% in November was a response to a decline in the euro zone’s inflation rate to 0.7%, well below its 2% target. Deflationary pressures are building in Greece and Spain as they undergo “internal devaluations”. We expect growth in the euro zone to average 1.4% a year in 2015-18.

4. Revised GDP data show that growth slowed to only 0.3% quarter on quarter in the third quarter, after a strong first half. Private consumption and business investment were subdued. We have shaded down our full-year 2013 GDP growth estimate to 1.7%. Despite a hike in the consumption tax, monetary stimulus will sustain the recovery in 2014 when we forecast growth of 1.7% in 2014. A weaker yen will benefit Japan’s exporters and will contribute to raising the annual inflation rate. The ageing of the population and disorderly public finances will constrain economic growth in the medium term.

5. The flight of capital from emerging markets has abated but sentiment remain skittish owing to uncertainty about the impact of the tapering of the US Federal Reserve’s bond buying programme. Fears about rapid credit growth in China persist. We estimate GDP growth of 7.7% in 2014. We forecast a slowdown to 7.3% in 2014, followed by a further slowdown to 5.9% in 2018. After a very weak performance in fiscal year 2012/13 (April-March), India’s economy is poised for a recovery in 2013/14 and 2014/15.

6. Oil consumption growth in 2013 was constrained by the slowdown in developing countries, including China and India. Consumption in 2014-18 will be curbed by greater energy efficiency and conservation, as well as substitution by, cheaper and cleaner, natural gas. Geopolitical risks weigh on the supply picture, particularly the Syrian civil war, and mounting civil unrest in Iraq and Nigeria. North American output is growing strongly, helping to offset the negative impact of supply outages in a number of OPEC producers.

7. Demand was relatively subdued in 2013, constrained by weak OECD growth and slower Chinese growth. Rising incomes and ongoing urbanisation in the developing world will underpin medium-term demand growth in industrial raw materials. The food, feedstuffs and beverages (FFB) index fell by nearly 7.4% in 2013, partly reflecting a bumper maize crop. Prices will continue to slip in 2014-15, before some recovery thereafter. Nominal commodity prices will remain historically high in 2013-18, but prices will ease in real terms.

8. The US Fed has started to reduce its monthly programme of bond purchases from January. This is likely to put upward pressure on global bond yields and lead to further capital flight from emerging markets. The reining in of US monetary expansion will be gradual: we do not expect rates to rise until 2015. Even so a gradual tightening of global liquidity will create headwinds for the world economy. Monetary expansion in Japan will provide only a partial offset to US tightening.

9. The euro should receive some support from the region’s emergence from recession. But concerns about a resurgence of the debt crisis will remain a potential source of pressure. The outperformance of the US economy and a less expansionary monetary stance on the part of the US Fed should continue to support the US dollar across the board. EM currencies remain vulnerable to monetary tightening in the West. Over the medium term they should gain support by positive growth and interest rate differentials with OECD economies.

10. + A sustained decline in oil prices provides a global economic fillip - Tensions over currency manipulation lead to protectionism - One or more countries leave the euro zone - The emerging market slowdown drags the world back into recession - US economy stumbles in the face of monetary and fiscal tightening 16 15

11. - Tensions over disputed islands ruptures Sino-Japanese ties + A rapid recovery in parts of the OECD drives global growth higher - Social and political disorder undermine stability in China - Economic upheaval leads to widespread social and political unrest - Civil war in Syria escalates into a wider regional conflict 12 10 9 8 12

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