According to the latest data from Wells Fargo Securities, LLC, global GDP growth is expected to track close to its long-run average of 3.6% in 2014. This would mark an improvement over 2013's figure, when a fiscal headwind in the US and a recession in the Eurozone during the first half of the year constrained global GDP growth to roughly 3%.
Still, two major downside risks pose the greatest threats to expectations for continued global expansion, most notably the ongoing crisis in Ukraine and the open question of whether or not China can successfully engineer a "soft landing" for its economy.
Most recently the Ukrainian government essentially conceded defeat in Crimea, withdrawing its troops after the predominantly pro-Russian region voted overwhelmingly to secede from Ukraine and was annexed by Russia shortly thereafter. Sanctions have already been imposed by the US and the EU, but the west has left itself plenty of room for more severe economic restrictions, which could provoke the Kremlin into responding in kind.
"If the US and the EU impose sanctions on Russia, the Kremlin could retaliate by imposing an embargo of its energy exports," Wells Fargo said in a report. "A long-lasting embargo, should one occur, would surely lead to another deep recession in the Eurozone." A Russian oil embargo could also cause prices to spike which could potentially slow global growth significantly.
In China, Wells Fargo noted that the business sector has become more leveraged over the past few years and with growth in China slowing, even to a still solid 7.5% as expected in 2014, more Chinese companies have announced that they will be unable to service their debts and could be facing default. "Although we do not expect a full-blown debt crisis to transpire in China, the Chinese economy is opaque, which complicates analysis, relative to most western economies," they added. "A 'hard landing' in China, the second-largest economy in the world, surely would have negative consequences for global economic growth."
- Jacob Barron, CICP, NACM staff writer