The global economy is still on its way to recovery, but the path has turned out to be more uneven for key economies than predicted at the beginning of the year, according to a global investment manager.
In its 2015 mid-year investment update released June 23, PineBridge Investments says much of the developed world seems to be on a continued though slow rebound, while emerging economies, such as those in Asia, have been slowed down by difficulties in implementing reforms.
The report lowered its forecast for gross domestic growth (GDP) in the United States and China with the cooling of their economies. But the Eurozone is on pace for better-than-expected 1.4% growth this year, it added.
As for Asia, implementing wide-ranging structural reforms that will foster faster economic growth has not been easy, as seen in the case of Indonesia, limiting the region’s growth potential.
Markus Schomer, chief economist at PineBridge Investments and author of the latest update, stated, “We believed this would be a pivotal year for the global economy and global financial markets. 2015 still has that feel, but it is unclear in which direction we are pivoting.”
“The global business cycle remains unsynchronized. Different economies have reached different stages in the recovery. The lack of debt deleveraging is one of the few traits most economies have in common,” Schomer said.
For the United States, PineBridge predicts a more subdued 2.6% growth rate this year, down from its previous prediction of 3.1%, due to sustained weakness in U.S. business investment and slowed consumption during a period of rapidly falling energy prices.
On the other hand, it notes Europe’s broadening growth trend in its upgrade of its growth forecast for the Eurozone to 1.4% from the more moderate 1.1% predicted at the beginning of the year.
In China, GDP growth slackened more than expected in the first quarter, prompting the government to revert to more aggressive monetary policy easing to lean against the accelerating slowdown. The mid-year update notes that “China’s politically sensitive 7% growth target already seems to have slipped out of reach.”
As for Japan, two years into its accelerated quantitative easing program, “Japan is back where it started: close to recession and deflation. As a result, we have reduced our growth forecast for Japan to 0.6% for this year, down from the 1.1% call in the original investment outlook,” the report said.
For the rest of Asia, the paper said the potential for a broadening reform cycle in emerging markets has not been fully realized. The exception is India, which continues to embrace reforms that are making it easier to do business, which will gradually lift the country’s growth potential.
In the Middle East, Schomer predicts that “regional growth will likely run below the expectations expressed in our original investment outlook. However, the underlying investment thesis remains quite bullish.”
Looking ahead, the paper predicts that the cyclical rebound in the developed world will continue, “although a more notable acceleration may not happen until 2016.”
As for emerging markets, “where reforms have not been embraced as enthusiastically as we had expected, additional policy easing seems more likely to boost growth in the near term,” it said.
Photo: NDS
