Deutsche Bank AG (DBK) cut its global growth forecast to 2.9 percent for this year and 3.2 percent in 2013, citing stalled recoveries in the U.S. and Japan and planned American tax increases and spending cuts.
“The outlook for the world economy has deteriorated,” analysts led by chief economist Peter Hooper in New York wrote in a report today. “Optimism regarding the near-term global economic outlook continues to fade, particularly in the U.S. where the ‘fiscal cliff’ at the end of this year appears likely to restrain growth well into 2013.”
While new policy easing measures by the Federal Reserve and European Central Bank boosted asset prices, “disappointing recoveries” in the U.S. and Japan will reduce global growth into next year, Hooper wrote. Emerging markets such as China, Brazil and India are “likely to struggle because of weaker exports to developed economies,” he said.
Economists at the Frankfurt-based firm three months ago had projected 3.2 percent growth this year and 3.5 percent next year, according to the report. They said growth in 2014 will accelerate to 3.8 percent, their first forecast for that year.
“Things have darkened significantly,” Hooper, who worked for 26 years as an economist at the Fed board in Washington, said today in a phone interview. “The uncertainty around the fiscal cliff and the election outcome are causing the business sector to be on hold for hiring and capital spending in a way that’s greater than we would have expected.”
The International Monetary Fund will cut economic forecasts for the global economy “by a few decimal points,” Khor Hoe Ee, an assistant director at the fund, said Sept. 20. The most recent IMF forecast, released in July, projected 2012 global growth of 3.5 percent. The fund cut its estimate for next year to 3.9 percent, from an April forecast of 4.1 percent.
“While central banks have mitigated market risks with their balance sheet operations, the economic risks remain frustratingly unchanged and relate mostly to fiscal policies,” the analysts wrote. “Our global growth outlook continues to anticipate a strengthening of demand over the coming four quarters. But the slope of that trajectory is now considerably flatter.”
The U.S. faces a so-called fiscal cliff of $600 billion of tax increases and spending cuts that will kick in automatically at the end of the year unless Congress acts. The Congressional Budget Office said in an Aug. 22 report that fiscal tightening of that magnitude could cause a recession.
Interest rates in the U.S. and Europe probably won’t rise until at least 2015 because central banks are “redoubling their efforts to support growth” and inflation is “likely to remain broadly under control,” the analysts said. Policy makers in developing nations may “tighten policy next year if food-price inflation picks up significantly,” they wrote.
The Fed is using new tools to attack a U.S. jobless rate stuck above 8 percent since February 2009. Policy makers said this month they will probably hold the federal funds rate near zero at least through mid-2015. They had forecast since January that rates will stay low at least through late 2014.
The world’s largest economy grew less than previously forecast in the second quarter, the U.S. Commerce Department said today. Gross domestic product expanded at a 1.3 percent pace after growing at a 2 percent rate from January through March. The revision, the third estimate for the quarter, compared with a prior estimate of 1.7 percent.
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