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The economic assessment of the last quarter is positive, with a decline in risk aversion in
the financial markets. The confidence indicators for manufacturing, which are a reliable cyclical
signal, have continued to improve in the advanced economies and have reversed the previous
deterioration seen in some major emerging economies like China. There has also been a decline
in financial stress and in outflows from emerging markets, both as a result of the change in
expectations about the Fed swiftly ending its policy aimed at increasing liquidity. The recovery of
growth in China, the end of the recession in the euro zone and the (temporary) fiscal agreement
in the U.S. complete the succession of events that have kept risk aversion in the financial markets
at relatively low levels.
The global economic cycle continues to recover, although moderately compared with
previous cycles. The global economy will grow nearly 3% in 2013, somewhat less than we
expected previously, given the downward revisions of growth in the U.S. and Mexico and in
some economies of emerging Asia. Nevertheless, we maintain our forecasts of an upturn in
growth in 2014, now to around 3.5%. This is a scenario of limited recovery, supported more by
the advanced economies (which except for Japan should grow more strongly in 2014) and with
a sustained contribution from the emerging economies in both Asia and Latin America.
The risks surrounding the global economic landscape are bearish, although the probability
of menace events strongly enough to derail the ongoing recovery is lower today than three
months ago. Firstly, a “disorderly exit” from the Fed’s QE program, i.e. an “excessive” increase
in long-term rates in the U.S. (as a result of the market’s loss of confidence in the exit pace
sought by the Fed, not of stronger growth), would place a strain on global financial conditions.
This would slow down an already moderate global recovery, especially in the euro zone, where
financial fragmentation, the reforms pending in the banking sector, and the length and depth of
the recession that is now coming to an end have resulted in a situation of weakness. Also related
to the U.S., another risk is the short-term resolution of the budget negotiation and the debt ceiling,
a matter that will be taken up again in a few weeks. Secondly, an adjustment of growth in China
and other emerging economies, as a result of either idiosyncratic factors or of the dilemmas faced
by the domestic policies of the economies most vulnerable to the exit from the Fed’s QE program.
In the case of the Chinese economy, although the growth outlook has not changed, there is a lack
of guidance that would ease the risks beyond 2013: the financial vulnerability of some business
sectors that resort intensively to credit, the liberalization of the banking sector, regional debt and
the opening of the services sector to refocus growth on domestic demand.