Despite the prospects for global growth being reasonably positive at the start of the year, growth slowed during the first four months of 2014, with this deterioration broadly affecting most economies. Against consensus expectations, US GDP contracted and both Europe and China grew at a below trend rate. More worryingly, global trade, which had appeared to be recovering during Q4 2013, retreated and declined at the fastest rate since the early stages of the Global Financial Crisis;
More positively, the deterioration in growth is likely to be transient, with various leading indicators and business surveys rising since the end of Q2. However, the ongoing recovery is unlikely to be uniform over the medium-term. The US and the UK appear set to experience some of the strongest growth, while the Eurozone, China and Japan face varying headwinds;
The unevenness of recovery across countries is likely to result in an unusual period of divergent monetary policy over then next six to eight quarters. The Fed and BoE1 are most likely to begin tightening policy soonest, whilst policy in Japan, the Eurozone and China is likely to stay considerably more accommodative for longer.
Source : AEW Europe