Dec 13, 2013

    US tipped to lead fastest expansion in four years


    THE world economy is primed for its fastest expansion in four years, with the US propelling the improvement in output.

    Global growth will accelerate at least 3.4 per cent next year, from less than 3 per cent this year, as the euro area recovers from recession and China and other emerging markets stabilise, according to economists at Goldman Sachs Group, Deutsche Bank and Morgan Stanley.

    Britain will be a standout, while Japan risks damping the mood by suffering a mid-year slowdown after an April increase in sales taxes.

    "So far, it's been a very bumpy, below-par and brittle expansion," said Mr Joachim Fels, co-chief global economist at Morgan Stanley in London. "Next year could bring a very important transition: a transition to a sounder, safer and more sustainable recovery."

    The upturn should prove bullish for equities and bearish for bonds. If it boosts corporate confidence in the durability of growth, it could further fuel demand, raising the odds that 2014 will break the pattern of recent years and come in better, rather than worse, than projected.

    "An improving global-growth picture is widely forecast but, in our view, also still doubted in the investor community," said Mr Dominic Wilson, chief markets economist at Goldman Sachs in New York. "We therefore see room for markets to price in a better cyclical story."

    Key to the improved outlook is the ability of the Federal Reserve and other major central banks to nurture the recovery with easy money while persuading investors not to drive borrowing costs higher prematurely.