By tothetick
Global economic growth has been downgraded today in a new forecast that has just been published by HSBC. According to analysts at HSBC, the forecast has been brought lower due to Federal Reserve decisions to cut Quantitative Easing coupled with the slowdown in growth being experienced notably by China, but also by other emerging countries such as India.
Forecasts for world growth stood at 2.2% for 2013 and now they have been lowered by 0.2%. Predictions for 2014 have also been reduced to 2.6%.
Growth: China
China’s GDP growth forecast was slashed from 8.2% to 7.4% for 2013 and the forecast for 2014 suffered the same treatment being reduced from 8.4% to 7.4%. However, the People’s Bank of China made a statement which showed that they were looking for quality growth rather than just quantity recently. The target is still below that which has been suggested by the People’s Bank of China, standing at 7.5%. Analysts believe that China will not be able to reach this objective for growth this year.
HSBC stated: "While dominated by the reduction in our forecasts for China, the new numbers also reflect further sizable reductions in our projections for Brazil and India, among others. They are consistent with the idea that, even allowing for the emerging nations' obvious long-term growth advantages, there is no easy escape from deteriorating near-term economic fundamentals”.
Growth: India
India’s growth forecast was reduced recently by HSBC, being cut from 6% to 5.5%. The reason that was given was the slowdown in reforms that are taking place there. Key reforms will however be voted this July and August. In particular, there will be the land-acquisition bill and the pension and insurance bills that are likely to go through. However, there are fears in India by many that the land-acquisition bill will lead to land prices shooting through the roof, thus only enabling speculators to reap the benefits and at the same time adversely affecting competitiveness with regard to agricultural produce. The only way round that, according to some in India, is to prefer leasing rather than acquisition of land. But the pension bill is also marred with controversy as the government may have to end up footing the entire weight of the minimum pension that is being put forward in the bill in order to win over the trade unions. If that happens, then growth will be undermined.
Brazil has also seen its growth forecast reduced to 2.4% by HSBC for 2013 and the 2014 prediction stands at slightly higher at 3%.
Growth: Brazil
Capital Economics also published research which showed that emerging markets were at their slowest rate of growth since 2008. Although, it did also suggest that Quantitative-Easing tapering would have little effect on what was going on in those countries economically-speaking. This was due to the fact that emerging markets were about as dependent on external financing as they were back in 2008 at the start of the financial crisis. The report stated: “As such, the majority should be able to withstand a reversal of capital inflows associated with a tightening of global monetary conditions”. Others are arguing that it is the Quantitative Easing that has enabled those economies too to remain in the positions that they are in. Average growth in Latin America, emerging Asia and Europe slowed to 4% during the first quarter of 2013. That is lower than the average figure for the past ten years, which stands at 6.4%. There could be an improvement in that in this second quarter, however. But, that means that emerging markets will also be slowing down, it will be hard to find where the impetus might come from to boost the rest of the world.
The question that is worrying analysts today is whether or not that slowdown will also spill over from emerging markets into the rest of the world. If it does, then it looks like there is a tough time ahead. Or, perhaps the Federal Reserve will just carry on printing to save us all from that!
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