Posted on October 19, 2013

The Annual Meetings of the International Monetary Fund (IMF) and the World Bank in Washington, D.C. last week highlighted the clouds on the horizon for the global economy.

The US economy continues to underperform, the Euro Area is slowly coming out of a long recession and Emerging Markets (EMs) have suddenly lost their golden luster. Where is the global economy heading, one may ask? According to QNB Group, the weaker economic outlook and several risk factors point to stagnation in the advanced economies and a slowdown in EMs, with China, Sub-Saharan Africa (SSA), and the GCC countries being the few bright spots on the horizon.

The IMF published its latest World Economic Outlook (WEO) on October 8. According to the latest WEO forecast, the US economy will only grow by 1.6% in 2013 and 2.6% in 2014. This performance remains well below the average growth rate of 3.1% in the decade prior to the Great Recession of 2008-09. It is also unlikely to reduce unemployment significantly. Moreover, the WEO highlights that the recent experience with the political deadlock surrounding the US budget and debt ceiling represent an additional downside risk to its forecast.  The Federal Reserve’s plan to taper Quantitative Easing (QE) could also slow down the recovery in the US housing market. QNB Group is therefore more cautious, forecasting US real GDP growth at 1.5% in both 2013 and 2014, provided the current political deadlock is resolved (see chart).

The Euro Area is slowly recovering from a prolonged recession. According to the latest WEO forecast, real GDP growth in the European currency block will still be negative (-0.4%) this year and marginally positive in 2014 (1.0%) under the assumption of a more benign global environment. If stronger export markets fail to materialize, though, flat domestic demand is likely to lead to lower European growth in 2014. Accordingly, QNB Group forecasts somewhat lower growth for the euro area in 2014 in the range of 0%-0.5%.


EMs were the bright spot on the global economic horizon up to May 18. The announcement by the US Federal Reserve that day of its intentions to start QE tapering led to large EM capital outflows and a significant slowdown in economic activity.

The jury is still out on whether this slowdown is temporary or permanent. According to the WEO forecast, it will come to an end next year, with EMs recovering their growth momentum from 4.5% in 2013 to 5.1% in 2014. QNB Group foresees a more long-term structural problem in countries like Brazil, India, Indonesia and South Africa, related to their dependence on commodity prices and capital inflows to finance their growth. Given the expected softening of commodity prices and further capital outflows associated with QE tapering, QNB therefore projects EM growth to slow further in 2014 to 4.0%. A more abrupt capital outflow associated with QE tapering is though a significant risk, and thus even lower growth.

Are there any bright spots on the global economic horizon? QNB Group believes that one country and two regions stand out as engines of global economic growth next year:

  • China: Notwithstanding the recent liquidity crunch this year, China will manage to grow 7.6% this year and 7.3% in 2014, according to the WEO forecast. QNB Group sees even higher growth in 2014, in the range of 8.0%-8.5%, driven by the continued transformation of China from an export-oriented economy to a consumer-based one.
  • Sub-Saharan Africa: Excluding South-Africa, the rest of the subcontinent is booming reflecting a rising middle class and higher investment in much-needed infrastructure. The WEO forecast is for economic growth to rise from 5.0% in 2013 to 6.0% in 2014. QNB Group sees an even higher growth rate in 2014 (6.5%-7.0%) driven by rising domestic consumption and higher public investment.
  • GCC countries: Finally, GCC countries will continue their drive to diversify from the hydrocarbon sector through infrastructure investment and a growing service sector, notwithstanding lower commodity prices. According to the latest WEO forecasts, growth in the region will pick up from 3.3% in 2013 to 4.4% in 2014. QNB Group forecasts somewhat higher growth of 4.5-5.0% in 2014, with Qatar leading the region with a growth rate of 6.5% in 2013 and 6.8% in 2014.

Overall, the horizon of the global economy is clouded by the likely stagnation in advanced economies and a slowdown in EMs in 2013-14. QNB Group predicts that the engines of global economic growth are likely to be China, Sub-Saharan Africa and the GCC countries, led by Qatar. Downside risks, however, abound to this scenario, which may lead to a few thunderstorms. It may be worthwhile to be prepared with an umbrella at hand.

Qatar Airways flies daily to Kilimanjaro, Tanzania