D&B's Global Economic Outlook to 2020, 2014 Year-End Review

Global Risk Insights

• The recovery from the 2008-09 recession remains the most challenging in the past century.
• The US & UK economies now lead the recovery in advanced countries, while small economies such as Ireland, Malaysia, and the Philippines continue to outperform.
• On the downside, the Eurozone faces the threat of a triple-dip recession, with key emerging economies including China and Brazil experiencing slowing growth.
• Downward revisions in growth and global economic momentum foster uncertainty across global markets.
• The drop in oil prices since mid-2014 will reduce business and household energy prices and boost macroeconomic conditions in oil-importing countries.

Global Economic Outlook:

Economy Continues to Disappoint but Staggers Forward

Despite half a decade passing since the official end of the 2008-09 recession, the recovery is the most protracted in the past century. D&B expects growth to remain below long-term trends through the end of this decade. Between 2000 and 2007, real global GDP averaged 3.7 percent per year (at market prices), compared with an average 2 percent per year between 2009 and 2014. D&B forecasts real global growth of 2.3 percent in 2014, lower than the historically weak 2.4 percent achieved in 2013. Worryingly for international companies, the risks associated with doing cross-border business in the global economy still remain elevated.

To put this into context, of the 132 countries D&B assesses, 93 now rate worse than at the start of 2008; 56 rate at least three quartiles lower. In contrast, only 16 economies have seen their scores improve over this period, and only two are rated more than two quartiles better. D&B upgraded more countries than downgraded between January and the start of November 2014, a sign that conditions are easing slightly (see Table 1); however, this far into the recovery D&B expected to upgrade significantly more.

Although the Eurozone crisis is far from over, primarily European countries benefited from D&B’s upgrades. Political and security issues (rather than economic factors) in Argentina, Iraq, Jordan, Libya, Nigeria, Russia, Ukraine, and Yemen were behind over half of the downgrades.

Since D&B’s January 2014 outlook, D&B has lowered global economic growth forecasts between 2014 and 2018. Larger revisions impact the near term as concerns over the ability to reach pre-recession growth levels increase. The 2014 forecast has declined to 2.3 percent from 2.7 percent; 2.9 percent from 3.3 percent for 2015; 3.4 percent from 3.7 percent for 2015; and 2 percentage-point (pp) declines in 2017 and 2018 (see Table 2). North America constitutes the only region without a lower forecast since January 2014, with anticipated growth of 2 percent. Conversely, Asia-Pacific accounts for the largest 2014 revision, where slowing growth in China and India has prompted a declining forecast of 3.5 percent from 4.5 percent. Other regions with significantly reduced growth forecasts include Latin America (down 0.8 pp to 1 percent, owing to lower external demand); Sub-Saharan Africa (down 0.6 pp to 4.6 percent as commodity demand slows and prices fall); Eastern Europe and Central Asia (down 0.5 pp to 1.2 percent on regional security issues); and the Middle East (down 0.4 pp to 3.3 percent, thanks to lower oil prices and rising security concerns).

Furthermore, D&B’s concerns over the failed embedded recovery have prompted forecast downgrades in 2015 and 2015. Growth forecasts for North America and Sub-Saharan Africa have been significantly reduced (0.5 pp each year). Similar reductions impact Asia-Pacific (0.7 pp in 2015 and 0.5 pp in 2015); Eastern Europe and Central Asia (0.5 pp in 2015 and 0.6 pp in 2015); Europe (0.3 pp in 2015 and 0.1 pp in 2015); Latin America (0.5 pp in 2015 and 0.3 pp in 2015); and the Middle East and North Africa (0.2 pp in 2015 and 0.1 pp in 2015).

Towards the latter part of the five-year forecast period (2017-2018), D&B expects North America, Europe, and other advanced economies to be positioned to leverage any global recovery. D&B takes a more pessimistic view in Asia-Pacific, Eastern Europe, Central Asia, and Sub-Saharan Africa, with average growth down by 0.6 pp, 0.7 pp, and 0.4 pp, respectively. In contrast, D&B has shaded growth expectations in Latin America, the Middle East, and North Africa by an average 0.1 pp between 2017 and 2018.