In this month's Viewpoint: Forecast update: recovery continues but headwinds persist, Europe: downside risks rise, EM forecast update: politics and policy and Macro summary
28 August 2014
Forecast update: recovery continues, but headwinds persist
- We have trimmed our global growth projections for 2014 and 2015 to 2.6% and 2.8%, a sluggish outlook by the standards of past cycles. The 2014 downgrade reflects some base effects from a poor first half and modest cuts to H2 in the US and Eurozone. For 2015 we believe structural headwinds will persist, not least a weaker supply side performance in the US due to adverse trends in demographics and productivity. We see past disappointments on US growth as more fundamental than just a consequence of unfortunate events.
- Such an outlook means that US unemployment falls further and inflation is likely to pick up in 2015 as cost pressures build, prompting the Federal Reserve (Fed) to start to normalise rates from mid-year. The Bank of England (BoE) is likely to join the Fed in tightening, but the European Central Bank (ECB) and Bank of Japan (BoJ) are expected to increase stimulus.
- Our scenario risks remain tilted to the downside with Eurozone deflation and a deterioration in the Russia-Ukraine crisis the greatest ‘known unknowns’.
Europe: downside risks rise
- Weak Eurozone growth and weaker inflation are a concern, leading us to downgrade our growth and inflation forecasts. However, markets appear to be buoyant with speculation that the ECB might unveil its own quantitative easing (QE) programme.
- The UK continues to buck the trend in Europe with ongoing strong growth. It may see a slight slowdown towards the end of the year as pay growth continues to be weak and the housing market slows, however, the Bank of England is likely to continue to prepare markets for eventual increases in interest rates.
EM forecast update: politics and policy
- A mix of policy and politics have driven our revisions to EM forecasts this time, with sanctions in Russia, elections in Brazil, intervention in China and reform efforts in India all playing a part.
Read the full report
Schroders Economic & Strategy Viewpoint - August 2014 22 pages | 748 kbDOWNLOAD
- Azad Zangana
- Craig Botham
- Keith Wade
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