Economic & Strategy Viewpoint
Schroders senior economists see risks of deflation in the eurozone and a hard landing in China but upside potential from a G7 boom, lower energy prices and fiscal stimulus in the eurozone.
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In this month's Viewpoint:
- Forecast update: Global tilt toward advanced economies
- European forecast update: Upgrades all round
- EM forecast update: Oil on troubled waters or fuel for the fire?
- Views at a glance
Forecast update: Global tilt toward advanced economies (page 2)
• An acceleration in the advanced economies is offset by weaker growth in the emerging markets to leave our global growth forecast at 2.8% in 2015. Lower oil prices, a stronger US dollar and Fed tightening tip the benefits of growth toward the developed markets. "Beggar thy neighbour" currency devaluation should help the Eurozone and Japan beat consensus, but at the expense of others.
• Inflation in the advanced economies is expected to record its lowest rate for five years in 2015, but pick up in 2016 as the impact of the lower energy price fades. We do not expect the Eurozone or the wider world economy to slip into sustained deflation, although our scenario analysis shows the risks to the baseline are still weighted in this direction.
European forecast update: Upgrades all round (page 7)
• It is a sea of green in Europe as we upgrade our growth forecast across the board. In the Eurozone, lower energy prices, a depreciating euro, stronger banks and ECB QE should all help lift growth in 2015 and 2016. The forecast for the UK has also been revised up, but the economy is on a slowing trend. Lower energy prices will help provide a soft landing.
Emerging market forecast update: Oil on troubled waters or fuel for the fire? (page 11)
• Oil’s decline has a mixed impact on the BRIC economies, with Russia an obvious loser. While inflation falls in India and China, the growth benefit is limited, and Brazil’s domestic problems outweigh international considerations. Meanwhile, the Fed hike looms and emerging markets are still looking vulnerable.