Global Growth to Hit 4.5% in 2014

City stalwart Robin Geffen predicts global growth of 4.5% next year, buoyed by Japan, the US and a recovery in Europe

Emma Wall 16 December, 2013 | 7:00AM
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Europe is no longer an impediment for global growth, says Neptune's chief executive Robin Geffen. Speaking at the Neptune's annual conference Geffen said that investors should expect global GDP growth of 4.5% in 2014 - up 100 basis points from this year. 

"Last year global growth was 2.5%, this year it will be 3.5% and 2014 global economies could grow 4.5%," he said. "Europe is no longer an impediment for global growth and the government will not hold back the US next year."

Geffen said that the voting public had made their displeasure known following the government shutdown in October this year, and that politics would not get in the way of economic growth in the US in 2014. 

There were concerns that the US could face a similar stand-off between the democrats and republican next year, but signs already suggest this is not on either party's agenda. Last week, the US House of Representatives approved a budget compromise which will delay a shutdown for at least two years.

While emerging markets - and in particular China - have experience slower growth since the global recession, Geffen assured investors that worries over emerging markets are misplaced. 

"This is not 1997, we are not seeing a repeat of the Asian financial crisis," he said. "I was investing in 97, it was a hairy place. Growth in China has slowed but Chinese policy makers are efficient at controlling the economy, and while there are cyclical headwinds the long term growth story remains intact."

Geffen did concede that certain economies who have experienced currency weakness may suffer when quantitative easing is tapered; such as Turkey, South Africa and Indonesia. This echoed Emily Whiting, of JP Morgan's Emerging Markets Equities team, who last month said that there were five markets in particular that have grown in an environment of cheap and easy money - and are therefore most at risk. The currencies of Turkey, Brazil, India, Indonesia and South Africa all suffered the most at tapering rumours.

These 'Fragile Five', which are spread across all three regions in emerging markets, have all seen their currencies impacted strongly. "This shouldn't surprise us - the US recovery brings with it a strong US dollar and rate normalisation - this headwind was always going to happen it was just a question of when, not if," she said. "Markets had anticipated these effects and those hurt most were those with wide or widening current-account deficits."

Geffen said that argument for equities over fixed income remained compelling. 

"Bonds are expensive on both a relative and historic basis, we are on the cusp of a great rotation," he said. 

While $253 billion had been invested into equities since May, that is a drop in the ocean compared to the $1.3 trillion that has flowed into bonds since the credit crisis began in 2007.

"If just 1% of the money in cash and bonds flowed into equities, the Japanese stock market would jump 5%, and the US and Europe stock markets would also rise," he said.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar