BNY Mellon Investment Boutique Warns of Deflationary Risks in Europe
NEW YORK and LONDON, Dec. 16, 2013 /PRNewswire/ -- Global gross domestic product (GDP) could accelerate from 3.0 percent in 2013 to 3.5 percent in 2014 while inflation remains uncomfortably low in developed market countries. Those were among the views expressed in the December Global Macro Views: 2014 Outlook from Standish, the Boston-based fixed income specialist for BNY Mellon.
The deflationary risks could be particularly acute in the euro area, the report said.
In the U.S., Standish expects economic growth to accelerate from 2.1 percent in 2013 to 2.5 percent in 2014 as the impact of the drag from fiscal policies begins to fade. This could lead the Federal Reserve to wind down its quantitative easing program by the end of 2014, Standish said.
"Although housing investment is likely to moderate due to the rise in interest rates, business investment could accelerate moderately as companies seek to replace aging capital stocks," said Thomas D. Higgins, chief economist and global strategist for Standish. "We see upside potential to our forecast for both growth and inflation in the U.S. given stronger household balance sheets and an improving labor market."
While Standish is looking for moderate GDP growth of 1.2 percent in the euro area in 2014, it also expects further monetary easing from the European Central Bank to deflect the threat of deflation. The risk of disinflation is partly driven by the internal devaluations of the peripheral economies as they seek to regain competitiveness by lowering their domestic price levels, Standish said. The United Kingdom could outperform the euro zone and achieve GDP growth of 2.4 percent in 2014, the report said.
The currencies of emerging market economies have been stressed as the Fed increased the probability of tapering its easing program. However, Standish said the accelerating global economy could raise the growth rate of emerging markets from 4.6 percent in 2013 to 4.9 percent in 2014.
In Asia, Standish expects Chinese GDP to decelerate to 7.0 percent, a result of government policies to lessen state intervention in the economy. While some of the reform measures are expected to boost growth, others such as stricter government budget restraints and increased bank governance could have a negative impact on growth. For Japan, Standish expects GDP growth to average just below two percent, and believes the government will expand its quantitative easing program to further stimulate the economy.
GDP growth in Latin America could increase to 3.1 percent in 2014, Standish said. While the region remains vulnerable to declines in commodity prices due to the slowing Chinese economy, Standish expects that to be offset by increasing demand in developed nations.
Notes to Editors:
Standish Mellon Asset Management Company LLC, with approximately $163 billion of assets under management, provides investment management services across a broad spectrum of fixed income asset classes. These include corporate credit, emerging markets debt (dollar-denominated and local currency), core / core plus, tax–sensitive, short duration, stable value and opportunistic (U.S. and global) strategies. Standish also offers full service capabilities in insurance client strategies and liability driven investing. The firm includes assets managed by Standish personnel acting as dual officers of The Dreyfus Corporation and The Bank of New York Mellon and Alcentra NY, LLC personnel acting as dual officers of Standish.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.5 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.
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