Fading Growth Acceleration for the Rest of the Year

I. GLOBAL ASSESSMENT AND OUTLOOKGlobal economic growth remained moderate and unbalanced in the summer, reflecting another slowdown in the Euro Area and Eastern Europe-particularly Russiaand a long lasting weakness in Brazil. Two countries of the BRIC club, which led the world's expansion in output and trade last decade, are in stagnation, while growth in the other two countries continues to decelerate. As a result, unemployment rates have remained high, especially among young workers, and a lot of the new jobs are only part-time, resulting in declines of workers' purchasing power with adverse effects on consumer spending.The fragile global economic recovery is expected to continue over the short-run forecast horizon as theclimate for capital expenditures is expected to remain weak amid the current dampening in business sentiment associated with three factors: 1) heightened geopolitical risks from widespread fighting in many parts of the Middle East and the conflict in Ukraine; 2) increased risk in the financial system from Latin America to Eastern Europe; and 3) escalating uncertainty on the timing of interest rate hikes in the United States, which when happens will lead to rising interest rates in the rest of the world and exchange rate re-alignments.The pace of global growth is expected to pick up gradually in the first half 2015, led by improvements in confidence and moderate acceleration of growth in the English-speaking industrial countries. Inflation rates will remain low for the rest of this year, with the exception of Latin America. Consumer prices will return to their acceleration path in 2015 led by food and energy as well as higher production costs from expected wage increases.II. SHORT-TERM INDICATORS AND FORECASTSThe baseline forecast incorporates major findings of the World Economic Survey, which was conducted by the German Ifo Institute and the Paris-based International Chamber of Commerce in the third quarter of 2014. About 1,200 executives from 121 countries have indicated that global economic activity in the third quarter has not changed direction, but they expect an improvement over the next six months. Three-fourths of the experts surveyed expect adverse effects on the global economy from rising energy costs and declining trade flows if the Middle East and Ukraine conflicts intensify. The major findings of the third quarter's survey are as follows:* Worldwide, executives evaluated the current economic situation, the third quarter of 2014, to be around satisfactory levels, led by unsatisfactory levels of capital expenditures. They found economic activity in their countries in the third quarter of 2014 to be slightly better than in the third quarter of 2013. Most important, regarding the future, executives are optimistic expecting economic conditions in the first quarter of 2015 to be above those prevailing in the current quarter.* On a regional basis, North American executives assessed the current economic situation to be above satisfactory levels and better than a year ago. Looking forward, business experts from the United States and Canada expect economic conditions to get better in the next six months. In Asia, executives appraised the current economic situation to be slightly below satisfactory levels and worst than a year ago; they were very optimistic about the future, expecting economic activity in the next six months to be better than in the third quarter of 2014. In Western Europe, executives' appraisals of current conditions were near satisfactory levels and better than the economic activity they experienced in the third quarter of 2013; expectations of European business executives on future economic conditions signaled a strong level of optimism providing some support that economic stagnation may end at the end of 2014.* With respect to prices, survey participants expect average worldwide inflation at the beginning of 2015 to accelerate from current levels. …