Assessment of the global economy

When the global growth forecast for 2013 was published in July last year at 3.2%, the estimate seemed rather conservative. However, almost a year later, the forecast remains unchanged, although with risks currently skewed to the downside. The on-going challenges to the global economy have also been highlighted in the IMF’s most recent World Economic Outlook, which has reduced its forecast for 2013 to 3.3%, from a 4.1% forecast a year ago.

While at the beginning of the year it looked as if further momentum was building up, the continued decline in the Euro-zone, the significant deceleration in the first quarter in some of the Asian economies and the recently acknowledged slow-down in Russia all have the potential to again push growth down slightly further. This recent deceleration has also become obvious in the continued slowdown in global industrial output, which began in May 2010 and has been mainly due to lower growth in the industrialized economies (Graph 1).

Some regions, however, could provide upside-potential. This would mainly come from the US, where the most recent progress in the labour market has provided some indications of Economic improvement. At the same time, uncertainty prevails given the emerging impact of the sequester cuts and on-going budget negotiations. If challenges can be successfully overcome, then this could lift US growth beyond the current forecast of 1.8%.

In the Euro-zone, a meeting of the European Council at the end of May is expected to discuss easing some austerity measures. This might reduce the 0.5% economic contraction expected for this year. In Japan, it is still too early to tell if the recently announced monetary stimulus will be accompanied by additional fiscal measures to further lift the current growth forecast of 1.1%.

In the major emerging economies, some further stimulus measures might provide upside support. However, given rising inflation levels, central banks and policymakers alike will be careful in pursuing such a policy. China is likely to consider the 1Q13 growth level of 7.7% as reasonable, as it is higher than their official forecast for the year of 7.5%, although below the MOMR forecast of 8.0%. India has continued lowering its key policy rate in April in order to provide some momentum to its economy, which is forecast to grow at around 6.0%.

However, elsewhere, the most recent data indicates a more severe slow-down in 1Q13 in many of the Asian economies and the latest PMIs for April point to a continued deceleration (Graph 2). Given the unbalanced growth levels, various economic challenges, and the significant impact of the unprecedented increase in monetary supply, the global economy has become more complex in the recent years.

Monetary policies in particular have had an effect on foreign exchange levels, foreign investments and rising asset markets, however, the full consequences are not yet clear.

Although world GDP growth has remained unchanged from the initial forecast, substantial revisions have been made to the economies of some regions since then. Consequently, regional oil demand growth projections have been revised, with upward revisions in Emerging and Developing Countries and sharp downward changes in the OECD economies, mostly in Europe and Asia Pacific. At the same time, total world oil demand growth in 2013 has remained broadly unchanged over the forecasting period at 0.8 mb/d.

However, there are a number of downward risks to the forecast for the remainder of the year. Given the prevailing economic situation and resulting downward risks to global oil demand growth, along with the potentially significant increase in non-OPEC supply, oil market developments warrant close monitoring over the coming months.