- Inflation in advanced economies is expected to fall next year, as weaker growth in emerging markets pushes global commodity prices down.
- Consumer price inflation in the US and Eurozone is expected to remain relatively weak in 2014, despite stronger domestic demand. Cebr expects that prices will increase by around 1.5% in the US, similar to inflation seen this year when demand was weakened by severe fiscal tightening. The Eurozone will see prices rise by just 1.4% over the year, down from 1.5% in 2013. In the UK, inflation is expected to fall from 2.7% in 2013 to 2.2% in 2014.
- This reduction in inflation will support real incomes, meaning living standards across advanced economies should stop falling.
- Consumption will be boosted by higher real incomes, prompting GDP growth of 1.9% in 2014 across advanced economies – up from 1.1% this year. Cebr expects that this will raise global GDP growth to 3.2% in 2014, from 2.5% this year.
- Cebr predicts that oil prices will decline by 3.8% in 2014, thanks to rising supply and slower demand growth from emerging markets.
- Non-fuel commodity prices are also expected to fall by 4.5% over the next year.
A combination of stronger GDP growth and weak inflation is expected to put an end to the decline in living standards across advanced economies in 2014, new forecasts by award-winning forecaster Cebr reveal today. Weaker growth in emerging markets is expected to reduce global commodities prices, allowing price growth to remain weak in the US, Eurozone and UK even as domestic demand strengthens.
Domestic demand is expected to improve across advanced economies in 2014, thanks to slower fiscal consolidation in the US and growing economic confidence in the Eurozone and UK. Normally, stronger domestic demand would be expected to push consumer price inflation upwards, however inflation is expected to remain stable at its 2013 level of 1.5% in the US and to fall from 1.5% to 1.4% in the Eurozone and from 2.6% to 2.2% in the UK. Reductions in the prices of core commodities, including oil, natural gas and foodstuffs should increase the purchasing power of consumers and allow living standards to stabilise.
Cebr anticipates that this will boost consumption in advanced economies, driving growth across the group to 1.9% in 2014, up from 1.1% in 2013. This increase will more than compensate for slower growth in emerging and developing economies, allowing global economic expansion to accelerate from 2.5% this year to 3.2% in 2014.
Cebr’s analysis of the Middle East region, carried out for the Institute of Chartered Accountants in England and Wales (ICAEW) shows that demand from emerging markets has played an important role in supporting oil prices. Slower growth in these markets, at a time when new capacity in the Middle East is coming on stream and US production continues to rise, is expected to reduce average oil prices by 3.8% in 2014.
We anticipate that oil prices will continue to fall over the next four years. The impact of shale oil on global markets has thus far been limited by the US’ embargo on exports of crude oil, however the threat of a domestic glut and reduced production lead us to believe that this export ban is likely to be lifted sometime before 2018. Sanctions against Iran are also likely to be softened with the forecast period, increasing global oil supplies further and providing another source of downward pressure on prices.
Slower expansion in emerging markets will also reduce the prices of industrial input commodities. This trend, already well established, is set to continue through 2014, with prices of non-fuel commodities expected to fall by 4.5%. Iron ore, uranium and most foodstuffs are expected to see price falls.
Katie Evans, the main author of the report, said: “Consumers across advanced economies have seen their spending power squeezed in recent years by high commodity prices, but declining oil, food and metal prices next year are likely to boost living standards. This should increase real incomes and help spur consumption and investment in these economies, supporting stronger growth in global GDP.”
Douglas McWilliams, Executive Chairman of Cebr, commented: “We expect global oil supplies to expand significantly in coming years, as the US lifts its export ban on crude oil, sanctions against Iran soften and new capacity in the Middle East comes online. Oil prices should average $100 a barrel in 2014, and fall further over the next four years.”