The outlook for 2014 is as positive as it has been for any year since the onset of the financial crisis. The world economy is now strengthening, with accelerating growth apparent in China, parts of Europe, the U.S., and Japan. There are a number of tailwinds pushing the global economy forward, including greater financial stability in Europe, surging oil production in America, ongoing stimulus in Japan, and rebounding manufacturing activity in China. Accordingly, the International Monetary Fund projects that the global economy will expand 3.6 percent in 2014 after expanding closer to 3 percent in 2013.
This is not to suggest that the pace of recovery globally and in the United States is unconstrained. Recent growth in various parts of the world has been motivated at least in part by stimulative fiscal and monetary policies. In the U.S., short-term interest rates remain at roughly zero percent and the Federal Reserve has continued its $85 billion monthly bond purchasing program known as QE3. The expectation is that in 2014 the Federal Reserve will begin to taper its monthly purchases. The experience of this past summer was that interest rates can exhibit significantly volatility even with the mere mention of tapering. Actual tapering could therefore set off a strong reaction in U.S. bond markets, driving interest rates higher, which, all things being equal, would represent a negative for construction.
America also faces another budgetary showdown in early 2014; one that threatens federal government shutdown and debt ceiling debacle. The conventional wisdom is that another federal government shutdown will be averted, but as of now there are no assurances. In Japan, the government recently green-lighted a plan to raise its national sales tax from 5 percent to 8 percent. This implies a slower rate of growth in 2014. There are also major social and economic issues facing the Indians, Brazilians, and Mexicans among others.
In addition to public policy associated risks, there are other threats to an otherwise benign construction outlook. As always, tensions in Middle East remain in focal point, threatening to push oil and potentially other commodity prices higher. Construction materials prices have been unusually well-behaved in recent months, rising little over the course of 2013. This input price stability makes it more likely that various construction projects move ahead than it otherwise would be.
We predict that the U.S. economy will grow between 2 and 3 percent in 2014 and that non-residential construction spending will expand in the high single-digits. Our presentation at the CMFA KnowledgeNOW Webinar on December 20th will focus on the associated sources of opportunity in 2014 and the myriad threats to the most optimistic forecast supplied in several years.