In many ways, 2013 has been a pivotal year. On the one hand, we have started seeing the first signs of recovery in the developed world. On the other hand, the BRIC growth miracle has lost some of its sheen. The smaller emerging markets have also been exposed to gravity, pulling down the overall growth to more normalised levels. Overall, the situation upon entering 2014 is more balanced in terms of growth prospects than it has been for quite some time.

European Bank's balances
The European Central Bank will complete its stress tests of European banks’ balance sheets in 2014. This is sure to create headlines as Mario Draghi, President of the European Central Bank, has already warned that if no banks fail the stress test, the tests would lose credibility. As necessary as the revitalisation of the European banking sector is, there is clearly a risk of increased uncertainty in Europe over which banks might fail. The good news, though, is that there is an expectation that the stress tests could end the deleveraging of European banks, with positive effects on growth as a result of better access to credit, particularly for SMEs.

Accelerating Growth
Monitoring global growth in 2013 has been a little bit like waiting for the kettle to boil. Nothing much has happened for quite a while, but now there are signs that growth is picking up pace, even in the anemic European economies. Still, we would advise against holding your breath, as the pick-up will probably be slower and weaker than most would have liked to see. But the kettle will get hotter, with stronger and more globally balanced growth in 2014.

Kicking the Liquid Balance
Central banks are playing a more crucial role than ever before in orchestrating the return to normality in the world’s economies, mainly through providing the markets with liquidity to foster economic activity. The flood of liquidity has had a positive effect, but at some point the tap will need to be turned off before it spills over or runs dry. This will be a dramatic change, and the way the banks deal with this tapering of liquidity will be essential to a sustainable recovery. The habit must be kicked, the question is when and how (fast).

Reshaping China
The Third Party Plenum took place at the end of 2013, and in the carefully crafted text of the communiqué issued afterwards, a new direction for China was suggested. With this as a backdrop, it is clear that 2014 is going to be an important year for China, with a number of issues facing central government. Market reforms are being promised, though the definition of markets remains murky. The demographic challenge is dealt with by easing the one-child policy, though it will take a generation to see the effect. A debt situation that is as sizeable as it is opaque will require some tough decisions, and probably some corporate victims as indebted companies fail, maybe even state-owned ones. Throw in increasing unrest over the dire state of the environment and pollution in big cities, and China should have enough on its plate for a year.

Unemployment Easing, but the young are left behind
Although we may be seeing the early days of a more normalised global economy, the unemployment issue is not going to go away anytime soon. Currently, more than 150 million people are out of work worldwide according to statistics, though the number is probably much higher due to a lack of reporting in many parts of the world. In the developed economies, more than 40 million people are looking for work with a staggering 23 million people in Western Europe alone. In Europe, the main problem is high youth unemployment, which is more difficult to mitigate due to lack of work experience or education. There is every reason to believe that talk of the “Lost Generation” will intensify in 2014 as other areas of the labour market slowly improve.

comments powered by Disqus