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Alternative Market Briefing

Global GDP to rise 3.5% in 2014 but Europe faces deflationary risks

Tuesday, December 17, 2013

Precy Dumlao, Opalesque Asia:

BNY Mellon’s Boston-based fixed income specialist Standish said that global gross domestic product (GDP) could accelerate from 3.0% in 2013 to 3.5% in 2014 but warns that inflation remains uncomfortably low in developed market countries.

In its December Global Macro Views: 2014 Outlook, Standish said that deflationary risks could be particularly acute in the euro zone.

"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."

In the U.S., Standish expects economic growth to accelerate from 2.1% in 2013 to 2.5% 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. While Standish is looking for moderate GDP growth of 1.2%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 see......................

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