Citi has just published its massive 80-page outlook for the global economy in 2014. "As 2013 draws to a close, the global economy looks to be exiting the slowdown of the past three years and entering a new phase of modest recovery and growth," wrote Willem Buiter, Citi's Chief Economist.
Buiter sounds decidedly optimistic. In the past, he's warned of the euro crisis escalating, even leading to the exit of Greece from the euro. "[W]hat is revolutionary about 2014 is that the likelihood of severe downside tail events, which could paralyze the global economy, seems to have diminished significantly (though not disappeared)," he said. "Granted, the euro-area is still work in progress, China presents meaningful question marks, Congressional gridlock in the US could still throw sand in the federal fiscal wheels and geopolitics can always surprise.
But, enough progress has been made that all of these issues seem less threatening today than 12 months ago." Here are some numbers: We expect a modest reacceleration in global real GDP growth (at market exchange rates) from 2.4% in 2013 to about 3.1% in 2014, the best since 2010, with growth in advanced economies (AEs) up from 1.1% in 2013 to about 2.0% in 2014. Growth is likely to be around 3% in the US and UK in 2014-15. Japan’s growth is likely to slow significantly during 2014 as the consumption tax hike bites," he added.
"We expect that EM growth will continue to outpace AE growth in 2014, as in every year since 1999. However, the EM-AE growth gap in 2014 is likely to be the smallest since 2002 and we continue to revise EM growth forecasts lower on balance. Buiter's macro outlook is summed up in this three paragraph conclusion: It is almost never quite true that one year resembles the previous one. Still, we expect 2014 to resemble in many dimensions a slightly improved version of 2013. Global growth is likely to be somewhat higher with a better grounded recovery. We do not expect monetary policy to turn dramatically in advanced economies, nor is fiscal policy set to tighten to the point of threatening growth.
Structural reforms are not likely to be earth shattering in 2014. Thus, we see the next year bringing a gradual return to normalcy. Of course, normal also implies surprises and some risks. Geopolitics can always surprise, though 2014 seems leaner as regards threats than has typically been the case in recent years. National politics, with presidential elections in several EM nations and a midterm contest in the US, could also throw a curve ball, but such shocks rarely are large enough to materially affect global economic performance over the course of a year. Sovereign accidents in Europe, a fiscal mishap in the US, or a bursting bubble in China are also possibilities, but seem either less likely than this year or, should they happen, of less global systemic significance.
The initiation of tapering by the Fed and some macroeconomic vulnerabilities in a few systemically important EMs could create a bit of a jolt. But, once again, it is unlikely that 2014 will bring an EM crisis like those of yesteryear. Moderate risks, moderate recovery. The trademark of 2014 appears to be that of incremental improvements. Yet, consistent, marginal improvement is, for this day and age, revolutionary. "Moderate risks, moderate recovery," he says.