IMF Forecasts Higher Growth for 2014


Yesterday the International Monetary Fund (IMF) released their World Economic Outlook (WEO) Update for 2014 that forecasts global growth to rise to an average of 3.7 percent, up from their 3.6 percent forecast in October and well above the 3 percent level that occurred in 2013.

Growth in the euro-area is projected to move higher by 1 percent in 2014 and up to 1.4 percent in 2015.

The IMF’s growth forecast for the United States is 2.8 percent in 2014, up from the 1.9 percent level that occurred in 2013.

Growth is expected to accelerate to only 3.0 percent in 2015 when U.S. sequester cuts are expected to take a larger bite out of fiscal spending.

The IMF expects a higher level of growth for the U.S. this year in 2014 due in part to weaker fiscal headwinds from the U.S. federal government.

A modest bipartisan budget agreement was reached on Capitol Hill in December that offset sequester cuts in 2014.

Last Wednesday the U.S. House of Representatives passed a $1.1 trillion bipartisan spending bill that assures the United States will have enough funds to pay its bills and operate the government  through September 30th, the end of the 2014 fiscal year.

The bill will be sent to the U.S. Senate and President Obama for final approval.

The next fiscal hurdle that remains is the U.S. debt ceiling which will need to be raised to avoid the U.S. from defaulting on its debts.

The U.S. Treasury has a self imposed deadline of February 7th with so-called extraordinary measures that technically allows the U.S. to avoid a default until the end of February or early March.

The U.S. national debt level remains well over 17 trillion.

The recently approved bipartisan budget agreement reached in December does little if anything to pay down the total national debt but it does offset sequester cuts and assist the U.S. economy to pick up steam in 2014 when the Federal Reserve will slowly begin to scale back their accommodative monetary stimulus policy.

Gina Martin Andrews from Wells Fargo Institutional Equity Strategist said yesterday on Bloomberg’s Surveillance that she expects a more volatile year in 2014 with earnings growth of 7 percent throughout the year that will be offset by multiple contraction as investors absorb the Federal Reserve scaling back on accommodative policy.

Martin Andrews holds a slightly bearish view and said that she expects zero percent growth in equity price returns for the year assumption with a 2 percent dividend.

“Our stance is really more about the multiple than it is about economic growth improving, earnings improving. Typically, the year when the Fed scales back policy, stocks have a tendency to suffer” Martin Adams admitted.

“And we have a year on our hands in which the Fed is going to scale back accommodative policy so I think this will be a year more of consolidation and more of absorbing the gains that we have had from the past several years” Martin Adams added.

In 2013 the Dow Jones industrial average finished the year up 26.5 percent, its best return since 1995 while the S&P climbed nearly 30 percent and the NASDAQ soared over 38 percent.

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