GCC countries, led by Qatar, plus China and sub-Saharan Africa are likely to be engines of future global growth with world economy facing stagnation in advanced economies and a slowdown in emerging markets in 2013-14, according to a new study.
With a projected growth rate of 6.5% in 2013 and 6.8% in 2014, Qatar will lead the GCC region, an expected key driver of global economy in future, QNB said in its weekly analysis.
GCC countries will continue their drive to diversify from the hydrocarbon sector through infrastructure investment and a growing service sector, notwithstanding lower commodity prices.
According to the latest World Economic Outlook (WEO) forecasts, growth in the region will pick up from 3.3% in 2013 to 4.4% in 2014.
Recently, the IMF and World Bank highlighted the clouds on the horizon for the global economy. The US economy continues to underperform, the euro area is slowly coming out of a long recession and emerging markets (EMs) have suddenly lost their golden luster.
According to QNB, the weaker economic outlook and several risk factors point to stagnation in the advanced economies and a slowdown in EMs, with China, Sub-Saharan Africa (SSA), and the GCC countries being the few bright spots on the horizon.
According to IMF’s latest WEO forecast, the US economy will only grow by 1.6% in 2013 and 2.6% in 2014. This performance remains well below the average growth rate of 3.1% in the decade prior to the “Great Recession” of 2008-09.
It is also unlikely to reduce unemployment significantly. Moreover, the WEO highlights that the recent experience with the political deadlock surrounding the US budget and debt ceiling represent an additional downside risk to its forecast.
The Federal Reserve’s plan to taper Quantitative Easing (QE) could also slow down the recovery in the US housing market. QNB is therefore more cautious, forecasting US real GDP growth at 1.5% in both 2013 and 2014, provided the current political deadlock is resolved.
The euro area is slowly recovering from a prolonged recession. According to the latest WEO forecast, real GDP growth in the European currency block will still be negative (-0.4%) this year and marginally positive in 2014 (1%) under the assumption of a more benign global environment.
If stronger export markets fail to materialize, though, flat domestic demand is likely to lead to lower European growth in 2014. Accordingly, QNB forecasts somewhat lower growth for the euro area in 2014 in the range of 0%-0.5%.
Emerging markets were the “bright spot” on the global economic horizon up to May 18. The announcement by the US Federal Reserve that day of its intentions to start QE tapering led to large EM capital outflows and a significant slowdown in economic activity. The jury is still out on whether this slowdown is temporary or permanent. According to the WEO forecast, it will come to an end next year, with EMs recovering their growth momentum from 4.5% in 2013 to 5.1% in 2014.
QNB foresees a more long-term structural problem in countries such as Brazil, India, Indonesia and South Africa, related to their dependence on commodity prices and capital inflows to finance their growth.
Given the expected softening of commodity prices and further capital outflows associated with QE tapering, QNB therefore projects EM growth to slow further to 4% in 2014.
A more abrupt capital outflow, associated with QE tapering, is though a significant
risk and thus even lower growth.
Notwithstanding the recent liquidity crunch this year, China will manage to grow 7.6% this year and 7.3% in 2014, according to the WEO forecast. QNB sees even higher growth in 2014, in the range of 8% to 8.5%, driven by the continued transformation of China from an export-oriented economy to a consumer-based one.
Excluding South Africa, the rest of the subcontinent is “booming”, reflecting a rising middle class and higher investment in much-needed infrastructure. The WEO forecast is for economic growth to rise from 5% in 2013 to 6% in 2014.
QNB sees an even higher growth rate in the region in 2014 (6.5%-7%) driven by rising domestic consumption and higher public investment.