World GDP growth stabilized during the first quarter of 2013 at a moderate rate. In particular, in the advanced economies the situation improved with financial stress being further reduced and stock prices rising. The acceleration of activity was most pronounced in Japan, while growth in the United States also improved but remained moderate.
The Euro Area remained in recession but the pace of contraction diminished. At the same time, growth in the emerging economies slowed down, although this was partly due to special factors. In sum, world output in the first quarter increased at an annualized rate of 2.5 percent. For the second quarter, the IfW-indicator for world economic activity, which is based on sentiment indicators for 42 countries, points to a somewhat higher growth of world output.
Outlook: gradual acceleration of global growth
Global business cycle indicators have improved recently, but economic momentum is still low and the expansion remains vulnerable to potential disturbances from, for instance, financial markets or a significant increase in commodity prices. This forecast is based on the assumption that, although uncertainty linked to the sovereign debt crisis in the euro area remains high, this will not result in another round of turbulence in financial markets. Given that structural adjustment in the crisis countries is proceeding, confidence in the future of the euro area should gradually strengthen supporting an eventual recovery in economic activity going forward.
Although growth in the advanced economies is expected to pick up over the forecast horizon, the outlook for growth remains muted in spite of the extraordinary monetary stimulus that is underway. In many countries private sector balance sheet adjustment is still going on, and fiscal policy is generally restrictive. For the US, we expect GDP rise by 1.8 percent and by 2.3 percent this year and next, respectively. The unemployment rate is projected to reach the 6.5 percent threshold triggering increases in the Fed funds rate not before the end of 2014. In Japan the acceleration of growth in response to the massive monetary and fiscal stimulus is expected to be temporary. On an annual average basis GDP should rise by 1.5 percent in 2014, only slightly less than this year. The euro area will remain in the doldrums for the time being. In the crisis countries we expect the recession to continue over the next couple of quarters, although the speed of the economic downturn should moderate. In the euro area as a whole output is projected to shrink by another 0.6 percent this year and rise be 0.8 percent in 2014.
In the emerging economies, economic policy is likely to provide some stimulus given the recent moderation of growth. This should contribute to a gradual acceleration of growth over the forecast horizon. That said, a return to the high rates of growth observed before the Great Recession is highly unlikely given that demand from the advanced economies remains relatively sluggish and structural problems on the domestic side restrain production. For China we expect growth of 7.5 percent in both 2013 and 2014.
All in all, we now project global GDP to increase by 3.2 percent this year, down from 3.4 Percent in our March forecast. For 2014 we have also revised down the outlook to 3.8 percent (from 4 percent in March). World trade growth should accelerate to a still modest rate of 4.5 percent in 2014, following 2.8 percent this year.
