Economic Outlook: Global Economy

Jan Hatzius, chief economist of Global Investment Research (GIR) at Goldman Sachs, discusses the mixed outlook for global economic growth with GIR senior strategist Allison Nathan.

Economic Outlook: Global Economy
Recorded on June 12, 2014

ALLISON NATHAN: Jan, as Goldman Sachs’ chief economist, heading into the year we had a relatively optimistic expectation of global growth, at least relative to 2013, when economic growth was disappointing. How has growth played out relative to our views?

JAN HATZIUS: GDP growth is going to come in lower than we thought at the end of 2013. We thought the high threes -- 3.6 percent was the number at the end of last year for 2014. Now we think probably low threes, and the reasons for this are disappointments in first-quarter GDP, especially in the United States and to a lesser degree also in the Euro area. We don’t think that this weakness in the first quarter, though, was really representative of what’s going on in the economies.  When we look at other measures of economic activity such as business surveys, labor market indicators, measures of income growth and things like that, we actually are seeing clear acceleration in underlying growth both in the United States and in the Euro area and we think that that’s a very important aspect of the overall picture in 2014. 

There were some special factors. Weather is one. Inventory cycles are another.  And there is some gap between the GDP numbers and what you’re seeing from other measures that we often think are more reliable. But the basic picture in our view actually looks reasonably similar to what we were expecting at the end of last year. Now, Japan I think is coming in more or less the way we had expected, and that’s true both as far as the GDP numbers are concerned, and I think in terms of the underlying picture, which is quite a bit of strength in the first quarter because of anticipation of the consumption tax hike, then a lot of weakness in the second quarter -- a big decline in sequential GDP growth -- and then stabilization later in the year. That seems to be playing out as far as we can tell. 

And in the emerging world, it’s still pretty sluggish. Growth is still quite weak, and we don’t really think that 2014 is all that different from 2013. But that was broadly the view at the end of 2013 as well.  In terms of the GDP numbers, again, they have eroded a little bit, but I think the basic picture is not that different. 
ALLISON NATHAN: Which countries do you think will perform best in the second half of the year in terms of economic growth?

JAN HATZIUS: I think the United States is probably at the top of that list, at least among the large economies. We are seeing acceleration in underlying activity.  We think we’ll see pretty good growth in GDP -- three-and-a-quarter percent or so. So I would say that the U.S. is definitely there. The United Kingdom has continued to do quite well.  Data have continued to come in above expectations even relative to our fairly optimistic view on the U.K., and we think that’s probably going to continue in the second half of the year as well. We’re hoping for a stabilization, some acceleration perhaps, in the Euro area, and also in Japan.

In the emerging world, I think it’s a little less clear. We’re not really hoping -- well, we’re hoping for better news, but we’re not really expecting much improvement there.  2015 might start to look a little brighter there, but for the remainder of this year we think the emerging world is going to be relatively slow.