Danske Bank report: global economy re-accelerating
The global economy is gaining speed and robust global growth is expected in the second half of this year, according to a new report published by Danske Bank.
In its latest global report, The Big Picture, Danske Bank says that after relatively soft growth in Quarter 1, the bank now looks for robust global growth in the second half of this year of above 4 per cent with all major regions contributing to the strong performance. The positive momentum is expected to continue into 2015 and augers well for opportunities and investment in Northern Ireland.
Danske Bank forecasts suggest that the annual global economy will reach 3.8 per cent in 2014 and 4.1 per cent in 2015. This stronger momentum is driven by job growth, lower inflation, wealth gains from improving stock markets, less uncertainty and accommodative monetary policy from the world’s leading central banks.
Commenting on the latest report, Danske Bank Chief Economist Angela McGowan said: “While economic stability and growth at a global level may at first appear unrelated to Northern Ireland’s economy; the reality is that the global environment strongly influences our own local economic conditions. International trade, the economic stability of our export markets, foreign investment levels, tourism and even the price that we pay for our commodities such as food and energy in Northern Ireland – are all influenced by global economic conditions. Strong global growth is good for the local economy and as global growth goes from strength to strength Northern Ireland’s economic opportunities will accelerate”.
Following years of headwinds the US economy is ready for take-off. Despite the slow start to the year, Danske is confident that the outlook for the US is strengthening and the economy is about to reach escape velocity. Danske Bank forecasts that the US economy will grow by around 3.5 per cent in the second half of 2014 and by 3.4 per cent in 2015.
Ms McGowan said: “Foreign Direct Investment from the United States is an integral component of Northern Ireland’s economic growth strategy and as the world’s largest economy is now in expansion mode, this augers well for our future inward investment levels. In addition, there are currently intensive negotiations underway to bring about a trade agreement between the European Union and the United States. This Transatlantic Trade and Investment Partnership (TTIP) will remove trade barriers for a wide range of sectors in Northern Ireland, making it easier for them to buy and sell goods and services from and to the US market – a market with 311 million consumers”.
In Europe, the recovery continues to unfold. A very positive development is the improvement in private consumption. Consumers are now the most optimistic since 2007 as low inflation has given a lift to purchasing power and unemployment has started to decrease. Uncertainty has been reduced substantially since the euro crisis ended and the recovery has started with substantial pent-up demand, which is now slowly being unleashed. Danske Bank believes that there is potential for upside surprises in the euro area especially now that more ECB liquidity will be injected there over the next two years. Already Spain, Ireland, Portugal and Greece are surprisingly on the upside. The weak link in Europe is France, where house prices are still overvalued and competitiveness is poor. Danske Bank forecasts that the euro area will grow by 1.2 per cent this year and 1.9 per cent next year.
Ms McGowan said “With around 15 per cent of Northern Ireland’s manufacturing exports going to the Republic of Ireland and the rest of the European Union; it is important for our economy that the European recovery continues. In addition, Europe’s recovery is vital if we are to realise NI’s ambition to grow our levels of tourist visitors from mainland Europe. The slump in the European economy in recent years resulted in a 4 per cent year-on-year decline in European holiday visitors coming to Northern Ireland during 2013. Hopefully as Europe’s recovery unfolds our local tourism industry will see a reverse in this trend”.
Emerging Markets have for some time been the biggest risk factor for the global economy as we have seen several bouts of instability over the past year. However, the depreciation of many Emerging Market currencies in combination with restraint on domestic demand has helped to repair external imbalances in countries such as India and Indonesia – two of the big Emerging Markets. The weak spots continue to be Brazil and Russia but things seem to be stabilising there as well.
Danske Bank expect China to recover moderately in the second half of this year on the back of easier financial conditions, mini-fiscal stimulus and improving exports to developed markets. Earlier this year, the Chinese government announced a mini fiscal stimulus consisting of frontloaded public infrastructure spending (mainly railways) and construction and renovation of subsidised housing. However, we expect growth to lose some momentum again in the first half of 2015, as the impact of the stimulus starts to wane. Danske Bank forecasts annualised growth of 7.4 per cent in China this year and 7.3 in 2015.
The main risks to global growth documented in Danske’s previous report have receded. In particular, risks are generally seen as low due to the fact that emerging markets have stabilised. The largest risk currently for the global economy centers around the pulling back of monetary stimulus in the US and the impact that this might have on bond markets.