The Ifo Indicator for the world economic climate continued to rise. Assessments of the current economic situation were more positive than three months ago. The six-month economic outlook remains bright. The world economy is expected to gain momentum in the months ahead. Caution, however, must be exercised in interpreting these assessments since they do not reflect the turbulence seen in the currency markets of emerging economies since the end of January.
Positive signals mainly emanated from North America, and especially from the USA. The economic climate indicator rose sharply due to additional positive assessments of the current economic situation, as well as more favourable economic expectations. The economic climate also improved in Europe, primarily thanks to less negative assessments of the economic situation. Expectations for the next six months remain confident. In contrast to the last WES survey, on the other hand, there are few indications of the economy gaining any momentum in Asia. Although assessments of the current economic situation in the region remained satisfactory, economic expectations – although still clearly positive – were scaled back slightly.
Inflation expectations for 2014 are 3.3% on worldwide average, versus an estimated inflation rate of 3.2% last year. There was also very little change in WES experts' assessments of trends in interest rates: while short-term interest rates look set to remain largely stable on average over the next six months, long-term interest rates are expected to rise. On worldwide average, more economic experts expect to see value growth in the US dollar over the next six months.
In the WES special question on the anticipated impact of the tightening of US monetary policy (tapering), experts worldwide expect an increase in long-term interest rates in their home countries. The dampening effect on the economy, however, is expected to be limited. Euro area countries in particular expect tapering to have only a moderate effect on short-term capital flows from abroad, the EUR/USD exchange rate and GDP growth. The experts surveyed in emerging economies, by contrast, expect their domestic currencies to devalue, coupled with a drop in foreign capital flows. Overall, however, BRICs and the group of emerging economies also expect only moderately negative growth effects. Contrary to widespread concerns, countries on the periphery of the euro area expect to be less impacted by tapering on balance than those in the core.
