New grounds for optimism

GLOBAL ECONOMIC PREDICTIONS FOR 2014

GLOBAL ECONOMIC PREDICTIONS FOR 2014:
New grounds for optimism

Andrey Dashin, founder of ForexTime Ltd (FXTM), Chairman of the board and shareholder of the Alpari brand, shares his personal views and predictions for the global economy in 2014, discussing new grounds for optimism but also existing thorns which will have to be removed for recovery to take off.

By Andrey Dashin
As the global economy says goodbye to a tumultuous year of EU unemployment, political instability worldwide and an infamous US government shutdown, it enters another year of forthcoming challenges, albeit with a heightened sense of hope for change.
Let's begin by saying that for the first time in three years, the World Bank is optimistic about global growth and the International Monetary Fund has predicted that it will rise to 3.6%. This is more than can be said for the poor 2013 estimates this time last year and is a strong way to start the year seeing as the need for positivity and confidence is more important than we realise it to be. Last year, I said that 2013 would be a year of reserved optimism; this year, I think it's safe to say that our optimism can be less contained. Momentum has picked up in the global economy at last, and the overall climate is promising.
Perhaps the most significant decision made in kick-starting 2014 came from the US, with the Federal Reserve choosing to start tapering Quantitative Easing (QE) at last. QE has been the way forward for the US, EU, UK and Japan for the past few years and a change in policy exudes confidence that things are about to change, despite concerns that tapering QE might have some negative effects too. The US should be spurred on by a stronger recovery in the housing sector this year, with all the relevant indicators already pointing towards progress. What's more is that this year the US will enjoy support from a backbone of a robust corporate sphere, with businesses having managed to cut costs and boost profit, banks being recapitalised and household debt beginning to dwindle. The United Kingdom seems to be following suit, with the Bank of England putting a stop to magnifying its QE programme, having also started to witness a strong surge upwards in most sectors of its economy and a growing sense of confidence amongst businesses and consumers.
As for Europe, I can't say that it is out of the danger zone entirely, but there has most definitely been substantial progress in comparison to last year. Eurozone GDP fell 0.4% in 2013, whilst this year it is forecast to rise 1.1%. That alone makes for a positive start to the year. Even if recovery is slow, Europe is on the right track. Sovereign debt has been calmed and the risk of the crisis spiraling out of control has been restrained. So, if the eurozone manages to tame unemployment, which is now one of its biggest thorns, everything can finally start to change.
In my opinion, a huge part of the problem lies in the fact that people's trust in their governments has been injured. Those who are feeling the sting of the crisis the most have become resentful and mistrustful of those who have been inflicting austerity measure after austerity measure upon them. Furthermore, faith in the constitution of the European Union has been scathed as well. So, perhaps the EU as an entity and the EU nations individually should firstly focus on regaining the people's trust, and if political stability is established then financial stability will more easily ensue.
If I had to choose one forthcoming event as the most important for global economy spectators to watch out for this year, it would be the European Parliament elections in May. Depending on the results, the elections could be the big game changer Europe has been waiting for, as they will determine the final course in the EU's path towards recovery.