Expected Growth and Currency Movement

March 10, 2014

Early each March, the Economist’s monthly survey of forecasters introduces a new out-year.  Growth projections for 2014 first appeared in the March 9-15th, 2013 issue, and the first forecasts for 2015 are in the current March 8-14, 2014 issue.  The table below shows the growth rates survey participants were predicting for 2014 a year ago (2014t0) and now (2014t1) as well as what they are thinking now about 2015 growth (2015).  The most substantial change from a year ago involves Britain, where expected 2014 growth is now projected to be 1.3 percentage points higher than a year ago.  The main downward revision involves Australia, where projected 2014 growth has been revised 0.5 percentage points lower.  Only Japan among economies below is expected to expand more slowly in 2015 than 2014, but none of the projected changes between those two years is very significant.

GDP Growth 2014t0 2014t1 2015
U.S. 2.6% 2.8% 2.9%
Euro Area 0.8% 1.1% 1.5%
Britain 1.5% 2.8% 2.5%
Canada 2.3% 2.3% 2.6%
Australia 3.1% 2.6% 2.9%


The intuitive view correlates improved growth perceptions with currency strength.  Sterling has in fact appreciated 11.5% against the dollar over the past year, while the Australian dollar has declined 12.2% against its U.S. counterpart.  The yen and loonie are presently 6.8% and 7.6% weaker now than a year ago, while the euro has risen 6.4%.  While U.S. GDP is seen expanding twice as fast as Ezone GDP, the Ezone’s upward revision for 2014 and perceived acceleration in 2015 are both greater than those of the U.S. economy.  These patterns suggest that projected economic growth is a more important determinant of currency movement than actual GDP growth.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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