The US and China will lead the global recovery, adding nearly $800bn to global growth this year, new research suggests.
But the Global Outlook Report from The Economist Intelligence Unit (EIU) also highlighted that the emerging markets are hindering growth.
“So far in 2014, global financial markets have been volatile,” the EIU said in a statement. “The principal cause of problems has been the continuing domestic trouble in emerging economies, with poor policy and subsequent political turmoil being seen in Turkey, Ukraine, Thailand and South Africa.”
Nevertheless, the EU pointed out that as key markets, including the US, continued to deliver strong economic growth, there had been no “widespread financial rout”. It has raised its 2014 forecast for US economic growth to 3% from 2.6% and it expects real GDP growth of 7.2% in China this year.
Simon Baptist, chief economist at the EIU, said: “The US economy is not on the verge of a sharp acceleration in growth, but conditions are clearly improving as the pick-up spreads beyond manufacturing and housing – the early drivers of the recovery – to consumer spending and business investment. We are therefore raising our 2014 forecast for US economic growth to 3% from 2.6%.”
The EIU highlighted that investors had been overreacting to negative news in emerging markets. “Argentina’s decision to allow the peso to fall in value by 15% in a two-day period in January was one such trigger, another being that Turkey is in the midst of a serious political crisis that threatens to destabilise the government,” it said.
It added that Brazil, India and Indonesia have all appeared vulnerable due to having large current-account and fiscal deficits. Furthermore, Brazil, India and Indonesia, as well as Turkey and South Africa, all have important elections taking place this year.
The EIU concluded: “Despite apparent weakness in emerging economies and global growth likely to be well below the peak of 5.2% in 2007, 2014 should mark an important step in the recovery of the advanced economies from the recession and the other shocks that have stunted global growth in recent years.”
Sally Percy is editor of The Treasurer