The world economy continues to move slowly out of the recovery room from the great recession of 2008-09, with still a number of bumps and bruises. This is the main message coming out of the IMF and World Bank Spring Meetings in Washington DC this weekend. While US economic growth remains moderate, the euro zone is suffering from a tepid recovery and near deflation. At the same time, Chinese growth is slowing on lower export demand and excessive leveraging and emerging markets (EMs) continue to adjust to the negative repercussions of the tapering of quantitative easing (QE). Overall, the global growth picture remains mixed, with only the GCC (particularly Qatar) and Sub-Saharan Africa registering strong growth and a positive outlook.
The US economy witnessed a slow start in the first quarter of 2014. Unusually cold weather has impacted construction activity and housing, while manufacturing and consumer sentiment remained moderately strong. A large trade deficit is also likely to dent economic growth. Looking ahead, the full implementation of QE tapering in the second half of 2014 is likely to keep growth moderate. Overall, QNB Group expects US economic growth of 1.5 percent-2.0 percent in 2014-15.
The euro zone crisis seems to be finally over but challenges remain. On the positive side, the euro zone periphery (Greece, Ireland, Portugal and Spain) is clearly showing a strong recovery, which is leading to lower bond spreads and higher equity prices. On the negative side, the Ukraine crisis and very low inflation (0.5 percent in March 2014, the lowest since November 2009) could derail the fragile recovery. Without additional monetary easing by the European Central Bank, growth is likely to remain below 1 percent in 2014, potentially rising to 1.0-1.5 percent in 2015.
China has so far accounted for more than half of global growth since 2009. However, its growth momentum probably slowed in the first quarter of 2014 on lower export demand and excessive leveraging. As a result of an unusual slowdown in global trade, Chinese manufacturing virtually halted in February 2014. At the same time, concerns about excessive lending practices and shadow banking have made credit harder to get.