Talking Economics: Eurozone forecasts on track
The European Central Bank's injection of stimulus and the fall in energy prices continue to provide support for the eurozone, but UK growth is likely to be hurt by austerity measures following the Conservatives' win in the May general election.
17 June 2015
Eurozone forecast: small upgrades
We have nudged up our growth estimates for the eurozone, but mostly due to base effects and better-than-expected recent data.
We expect growth to rise from 0.9% in 2014 to 1.4% in 2015 (previously 1.3%), and then increase further to 1.6% in 2016 (unchanged).
In terms of inflation, less deflation in the first quarter helped lift the annual average, while a slightly faster-than-anticipated rise in global energy prices will also help.
We expect 2015 inflation of 0.2% (from 0.1% previously), with the 2016 forecast unchanged at 1.2%.
In terms of monetary policy, we continue to expect the European Central Bank to buy €60 billion of assets per month until September 2016, with interest rates kept on hold.
UK forecast: rate hike delayed
The UK growth forecast has been downgraded for 2015 from 2.6% to 2.2%, partly due to the much weaker-than-expected outturn in the first quarter, but also due to negative base effects caused by an upward revision to 2014.
We have lowered our inflation expectations from 0.6% to 0.4% for 2015 due to weaker core inflation (which is partly as a result of the strength of the pound versus the euro helping to lower import price inflation).
The Bank of England (BoE) will not be able to raise interest rates while inflation is still below 1% ( the BoE's lower bound of its target).
So we have pushed out our expectations for the first rate hike from November 2015 to February 2016. We forecast the BoE to then hike each quarter by 0.25%, taking the policy rate to 1.50% by the end of 2016.
Important Information: The views and opinions contained herein are those of Schroders’ Investment team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. UK: Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA, is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Further information about Schroders can be found at www.schroders.com US: Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc, a SEC registered investment adviser and is registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan providing asset management products and services to clients in Canada. 875 Third Avenue, New York, NY, 10022, (212) 641-3800. www.schroders.com/us