Economists have hailed the UK and the US as the most optimistic areas of growth in 2014, but have cast a more bearish note on Europe.
Much attention has been paid to a recent speech by former deputy secretary of the US Treasury Larry Summers at the International Monetary Fund in which he said the global economy could face a prolonged period of “secular stagnation” – meaning long-term, persistently low economic growth.
Since the speech, Bank of England governor Mark Carney and Yves Mersch, an executive board member of the European Central Bank, have rejected the idea as too “pessimistic”.
Other economists appear to agree. Simon Ward, chief economist at Henderson Global Investors, said the pace of growth will probably remain subdued until the latter half of the decade because of the continued fallout from the financial crisis.
But he highlighted near-term positives, such as the UK, which he expects to continue to outperform other developed economies in 2014 in GDP growth.
Sebastian Mackay, investment director at Standard Life, said Mr Summers’ stagnation scenario applies much more to Europe than to the US.
“In the eurozone, the parallels with Japan in the 1990s are quite clear. Ongoing deleveraging by the private sector is depressing growth, and the banking sector is still not comfortable lending to the private sector,” he said.
“Until we see the financial sector lending to small companies, we don’t feel particularly confident that there will an independent source of domestic demand.”
Mr Mackay is more optimistic about the prospects for the US and the UK, although UK growth has been boosted more by housing and is more unbalanced than that of the US.
Neil Williams, chief economist at Hermes Fund Managers, sad he perceives signs of growth, but expects “abnormally” loose monetary policies to continue.
“There are green shoots, but they need more watering by the central banks, especially when there’s a dark cloud overhead called the eurozone,” he said.
Mr Summers’ stagnation scenario can certainly be applied to the eurozone, said Mr Williams.
“It seems ironic to me that the region that needs quantitative easing the most is the one doing it the least,” he said.
The longer the European Central Bank leaves it, he added, the more likely it is that the situation will worsen and that the euro will strengthen at the wrong time. This would hamper the region’s competitiveness and could risk deflation.
“If we are looking for the world to start firing again, then 2014 is probably not our year. On the one hand, we have green shoots in some developed markets, particularly the US and the UK,” he said.
Keith Wade, chief economist at Schroders, expects global economic growth to be roughly 3 per cent in 2014, with the US accelerating and Europe emerging from recession with 1 per cent growth.
He added that the US and some emerging markets would be able to withstand the withdrawal of loose monetary policies, but the eurozone would find this challenging.
