01/14/2014

Could 2014 be the year the world’s advanced economies get their mojo back?

Author: Dennis Nally, Chairman, PwC International Ltd.

Dennis Nally photoThis is one of the questions our economic experts have considered as they predict how 2014 will play out in the January edition of PwC’s Global Economy Watch. At this time of the year, when we all look forward, I thought I’d share some of their conclusions with you.

After six years in the doldrums, our PwC indicators suggest that the advanced economies of the US, Europe and Japan will contribute about 40% to global GDP growth in 2014 and help expand the global economy by 3.4% per annum. This growth will be spurred on in no small part by improving consumer confidence and that, in turn, will boost business confidence. As we look forward, it’s clear that CEOs should refocus on core markets in advanced economies as those regions are likely to see significant growth.

Take the US, for example, where the largest economy in the world should play a significant role in cementing this slow but steady revival. We believe it’s unlikely there’ll be another federal government shutdown in 2014, so fiscal uncertainty is projected to pose less of a drag on the wider US economy – not least for smaller businesses that create most jobs.

We share a similar sense of cautious optimism for the Eurozone where the economies of Greece and Portugal should see small but significant economic growth in 2014. But it’s Ireland, after a few years cursing the term “Celtic Tiger”, that could see real improvement. Out of all the Eurozone economies that have really struggled in recent years, we project Ireland will deliver solid export growth.

While global economic growth trends look positive for 2014, we believe CEOs should still proceed with a degree of caution. For one thing, the cost of financing debt could increase in 2015 as the US and the UK adjust monetary policy to mirror their growing economies. There also are continued concerns about some European economies. Our predictions suggest the Eurozone crisis now is in remission, but we still assign a one-in-four probability of significant flare-ups occurring in 2014.

The price of oil could add to that uncertainty. The economic revival in the US and Europe will increase the demand for oil. And this could be exacerbated by a disruption to supply due to various geopolitical tensions, as well as industry infrastructure problems stemming from underinvestment during recent years of low oil prices.

Based on our projections, a $20 per barrel increase in oil prices across the global economy would cause Japan, the US and the Eurozone to experience a slowdown in growth. Most emerging economies would also be affected at a time when many of the former fast-growing emerging economies are faltering.

It’s not all bad news though. Our experts believe Brazil’s world-class track record combined with being the host nation makes it the favourite to lift this year’s World Cup!

So, as you plan for 2014, don’t forget to look for opportunity in the advanced economies, keep an eye on the cost of financing debt and continue to stress test your business so you’re prepared for what’s still a volatile global economy. Oh, and maybe put a small wager on Brazil.

 

Dennis Nally leads the global network of PwC firms. He has extensive experience serving large multinational clients in a variety of  industries, principally focusing on technology and life sciences. Dennis is also a frequent speaker and guest lecturer on issues affecting the professional services profession and the global capital markets. Read Dennis Nally's full biography.

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