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Expect "Upside Surprises" for the Economy in 2014: Nariman Behravesh

Daily Ticker


Nariman Behravesh, chief economist at IHS, a global economic research firm, nailed nine of his 10 predictions for the economy in 2013. So, of course, we wanted to get his outlook for the coming year, which has a notably upbeat tone.
 
"What we're going to see going into 2014 is that the numbers will progressively get better," Behravesh tells The Daily Ticker. "And we could see some upside surprises especially in the U.S. but also Germany and China."

In his Top 10 Predictions for 2014, Behravesh is forecasting 2.6% GDP growth in the U.S. -- vs. 1.7% for all of 2013--largely because of the strength of the U.S. consumer. 

Related: The U.S. Economy Will Trump China's in 2014

"U.S. consumers are feeling more upbeat right now," says Behravesh. "A lot of the unpleasant news is off the front page, like the sequester...the government shutdown. [And] gasoline prices are down. The job situation is improving... We could have a very nice holiday season coming up ... that will build momentum going into 2014."

Indeed, the Commerce Department Thursday reported that November retail sales rose 0.7%--the biggest gain in five months. Coupled with a revised stronger number for October, the report suggests a strong start to the holiday shopping season, although earlier reports of Black Friday weekend sales showed sales 3% lower than last year.

Related: Has the U.S. Economy Entered a "Permanent Slump'?

Some economists even upgraded their fourth-quarter GDP outlook based on Thursday's retail sales number, The Wall Street Journal reports. For example, Barclays raised its Q4 forecast to 2.2% from 2%; JPMorgan raised it to 2% from 1.5%.

Behravesh isn't making any changes to his forecast for this year or next based on Thursday's retail sales data, noting he was already ahead of the consensus. "We've felt all along U.S. growth will pick up this coming year, gradually moving up toward 3% as the year progresses," he says.

Given that expectation, Behravesh expects the Fed will "will taper [its asset purchases] sooner than later" but his "best bet" is for that to start in January rather than at the Fed's December meeting. Daily Ticker views may recall the IHS economist correctly predicted here on Sept. 6 the Fed would not taper in September, an unconventional call at the time.

Related: "No Urgency" at the Fed to Taper Despite 'Strong" Jobs, GDP Data: Girard

Furthermore, he doesn't expect the Fed will raise interest rates until 2015, after it's " convinced the economy has staying power."

Fed policymakers have said they would not raise rates from the current 0%-0.25% range until the unemployment rate falls below 6.5%, so long as inflation is contained - as recent data suggest is very much the case. (Friday's PPI report showed wholesale prices fell 0.1% in November, the third straight drop. PPI is up just 0.7% on a year-over-year basis while the core rate is up 1.3%.)

Behravesh predicts the U.S. unemployment rate will drop to 6.9% in 2014. (It was 7% at last reading, for November.)

His other top predictions for 2014 are:

•    Flat commodity prices
•    A stronger dollar
•    Better fiscal balances in the U.S. and Europe. U.S. deficit at $700 billion compared with $1.3 trillion 2011
•    0.8% growth in Europe overall -- Greece, Italy & Spain struggle while Germany & the U.K. advance
•    Stronger emerging markets, including China

Tell us what you expect for the economy next year.

Send an email to: thedailyticker@yahoo.com. You can also look us up on Twitter and Facebook. You can also look us up on Twitter and Facebook.

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