26/6/2014: Ifo on Global Economic Conditions

Ifo Forecast 4 German economy: GDP +2.0% in 2014 (prev 1.9%); +2.2% in 2015. Unit labour costs 1.6% & 2.3%. Exports: 4.6% & 6.2%.

"As in 2013, the upturn is driven by domestic demand. Growth in equipment investment will accelerate due to high capacity utilisation rates, necessitating investments in replacements and expansion. Construction investment will also continue to rise significantly, driven by a reluctance to invest abroad and low interest rates. Private consumption is expected to increase at a similar pace as real disposable income levels. Export growth will accelerate thanks to an improvement in the world economy. Imports, however, will grow at an even faster rate due to the strong expansion of domestic demand."

On world economic situation:
"Thanks to developments in the advanced economies, growth in the world economy has picked up slightly since summer 2013. The economic recovery in the USA, Great Britain and Japan gained momentum, while the euro area emerged from a recession that lasted almost two years. Although the emerging economies continued to post higher growth rates than advanced countries, the economic expansion in the former remained relatively weak by historical standards, and has slowed down even further since summer 2013 in some areas."

"…The pace of global economic expansion will pick up moderately over the forecast horizon, primarily driven by the advanced economies.

• The US economy will gain impetus, boosted by an improvement in the asset position of households and companies, further brightening in the labour and real-estate markets, and expansive monetary policy. 
• Economic developments in the euro area will remain plagued by complex structural problems that are still present in several member states and will take some time to solve. The recovery in aggregate economic activity will temporarily stabilise, despite the continued existence of major differences between member states. 
• Growth in the German economy, in particular, will far outstrip the euro area average for the forecasting period, while economic momentum in France and Italy will be relatively weak. 
• The situation in the crisis-afflicted countries of Ireland, Portugal and Spain is expected to be somewhat more positive, although the economic situation remains fragile. 
• Greece is still waiting for an economic recovery, but several years of recession may come to an end in 2015."

"All in all, aggregate world economic production will rise by 2.9% this year and 3.3% next year."

Emerging markets: 

• "The pace of expansion in emerging economies will barely pick up in the forecasting period. Although they will benefit from the economic upturn in key advanced economies, the gradual rise in long term interest rates in the  US will, at the same time, result in a steady deterioration of financing conditions for emerging economies. Nevertheless, aggregate economic production in emerging economies will grow at over twice the rate as in their advanced counterparts." 
• "Russia is the only country that is expected to experience an economic downturn this year."

Risks:
"One of the main risks for the world economy remains the fragile situation in the euro area. Despite the reform measures recently introduced by several member states, the adjustment process is far from complete. As a consequence, many of these countries remain far too expensive to be competitive. As in the past three years, crises could erupt at any time."