The global economy remains impacted by a clear divergence in growth rates. We see no reason to expect anything other than a very cautious Euro-zone recovery going forward, based on GDP increases of -0.7% and 0.7% in 2013 and 2014, respectively. Conversely, despite its recent shortlived sequester-related slowdown, the US recovery continues, causing us to raise our GDP growth estimate to 3.2% in 2014, well above the current consensus expectation of 2.5%. Consequently, despite slightly lowering our 2013 projection to 3.6%, we have also upgraded our global GDP forecast to 4.2% (PPP adjusted), mainly due to a less strict fiscal policy: we expect the negative impact of OECD fiscal policy to decrease from 1.1% of GDP in 2013 to 0.3% in 2014, supported by improvements in both the EMU and US. With fiscal policies restrictive and the recovery this year slow, the outlook for financial markets remains highly dependent on central banks and their continued support. We regard the USD appreciation against most currencies during recent weeks, particularly those of EM, as premature, as we believe the Fed will retain QE3 at current levels (USD 85bn/month) until early next year. Indeed, we would expect the USD to depreciate slightly if Bernanke reminds markets this week of the slow labour market recovery and the need for more QE3.
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