Caterpillar just announced Q1 earnings that beat expectations, and management also boosted its guidance for full-year earnings.
This is great news for shareholders, who are watching the stock price rally.
But this could also be a good sign for the whole economy.
As a global supplier of construction and mining equipment, Caterpillar is a pretty bellwether of economic activity.
Every quarter, management actually provides a pretty good overview of the economy based on what they see.
Here are some key 2014 forecasts:
- 3% global economic growth
- 2% growth in developed countries
- 4.5% growth in developing countries
- 7.5% growth in China
- most central banks to keep interest rates low throughout 2014
Here’s the whole outlook :
Overall, our expectation for world economic growth in 2014 has changed little from the outlook we provided with our 2013 year-end financial release in January of 2014. We anticipate global economic growth in 2014 of about 3 per cent, up from about 2 per cent in 2013. Economic indicators that signaled improvement in global economic conditions during the last half of 2013 continued to indicate improvement during the first quarter of 2014. Interest rates are at record lows in many countries, and low inflation coupled with elevated unemployment should cause most central banks to keep interest rates low throughout 2014.
Despite recent softness in some commodity prices, improvement in the world economy should increase demand for mined commodities and energy, keeping commodity prices at levels that are profitable for production. As a result, we expect mine production will continue to increase in 2014. While most commodity prices should be high enough to make investments attractive, we expect mining companies will remain cautious with equipment investments, and we expect continued decreases in mining capital expenditures for equipment in 2014.
Economic policies in developed countries should continue to support growth in 2014. Governments reduced budget deficits in 2013 well below the recent financial crisis highs, which should allow them to focus less on austerity actions in 2014. Inflation in most developed countries declined in early 2014, and economies are operating well below potential. Low inflation and slow progress on restoring employment should allow central banks to maintain low interest rates. We expect economic growth in developed countries will improve to 2 per cent in 2014.
Growth in developing countries has slowed over the past few years to around 4.5 per cent. The slowdown has been broad based, including China, India, Russia and Brazil. While we do not believe inflation has been a major problem in most developing countries, some have increased interest rates over the past year and we believe it is beginning to negatively impact economic growth. In 2014, some central banks have further increased rates, or maintained high interest rates, in part to defend their currencies. As a result, we believe interest rates are near a peak and should remain close to current levels throughout 2014, which could limit growth. As a result, we expect overall growth in developing countries to remain near 4.5 per cent in 2014.
There are numerous risks in the world economy. Notable risks include growth in Europe and China and heightened geo-political risk in several developing regions, particularly Russia, Ukraine, Africa and the Middle East.
The Eurozone economy is recovering but is far from healthy. The ongoing decline in business lending, slowing inflation and recent strengthening in the euro are all concerns. The unwillingness of the European Central Bank to take more aggressive actions risks leaving the economy struggling for years. Continued weak growth would make it difficult for businesses to maintain existing operations, let alone make new investments.
Our outlook assumes that China’s economy will grow near 7.5 per cent in 2014, similar to the past two years. That rate of growth should support improvements in the machine industry and increase commodity demand. However, Chinese leaders are in the midst of major reforms to transform the world’s second largest economy to a more sustainable growth model while maintaining social stability. In the short term, these efforts could impact the economy and the industries we serve.
Political and labour problems could slow growth in the Africa/Middle East region, particularly in mining and oil- producing countries. Also, 2014 growth could slow further in the CIS region due to higher interest rates and political unrest.
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