US growth has been revised up again, to 4.1% for Q3
While Moody’s Analytics chief economist Mark Zandi has gone out on a limb and forecast that the US economy will, in 2014, experience its fastest growth in a decade, with US Q3 GDP growth being revised upwards to 4.1%—from the advance estimate of 2.8%—the economy has never been in finer fettle. Only once before since 2010 has the economy grown faster—it grew at 4.9% in Q42011 on the back of very strong inventory build-up. While the IMF forecast is likely to be raised going by what IMF managing director Christine Lagarde has said recently, even the IMF’s current 3% projection for 2014 makes it one of the strongest in the last decade. What adds to the optimism is that investment growth has been the highest in 7 quarters and, more important, US corporations are flush with cash and, after many years, US companies are announcing expansion plans—US manufacturing, according to a Barclays report, is likely to add 20,000 jobs a month in 2014, a large part of which could come in the automobile sector. Aided by the dramatic drop in energy prices, and a very slow growth in wages—a Breakingviews analysis points to US wages rising just 4% between 2006 and 2011 as compared to 14% for China and 18% for Brazil—it’s not surprising that many are talking of a re-industrialisation of the US.
Equally heartening is that, this time around, other engines of growth also look as if they will fire at the same time. While Chinese growth has been a worry, especially in view of its large shadow banking sector, if the new reforms announced by the political leadership are implemented properly, Chinese growth should remain on track. In Europe, while the health of banks still remains a problem, most estimates are growth will return to around 1% in 2014 after two years of contraction. The composite PMI, for many European countries, is at a 3-5 month high—while Germany, the engine of European growth, is at a 29-month high; that for Italy, Ireland and France is a 5-month high while Spain is at a 3-month high. Eurozone employment, which is critical as far as more reforms are concerned, however fell for the 23rd month running which suggests the recovery will be patchy and slow. In Japan, while it is still early days, manufacturing activity has risen at the highest ever since July 2006. All of which bodes well for India in 2014.