In this month's Viewpoint our economists cut their global and European growth forecasts for 2016, examine the uneven recovery in emerging markets and look at what the risks are to the world economy.
1 December 2015
Global update: the square root recovery continues (page 2)
We have trimmed our forecast for global growth to 2.6% for 2016 from 2.9% as although global demand has held up, there is little momentum and still some signs of excess inventory to clear.
The benefits from lower oil prices will continue to support consumer spending, but inflation is set to rise and the oil dividend fade in 2016.
Meanwhile, monetary policy is set to diverge with the US and UK tightening whilst policy eases further or remains loose in the Eurozone, Japan and China. Scenario risks are tilted toward the downside, raising questions about the ability of central banks to respond to adverse shocks.
European forecast update: downgrades for 2016 (page 8)
Growing external risks have prompted the European Central Bank (ECB) to consider adding further stimulus.
Growth, while slightly weaker than expected, is still consistent with a reduction in excess capacity, and therefore an eventual recovery in inflation.
Our growth forecast for 2016 has been downgraded to a similar performance to 2015, although we then see growth picking up in 2017.
As for the ECB, we think quantitative easing (QE) will eventually be extended, albeit to have a limited impact on the economy.
The UK is showing greater signs of spare capacity diminishing, highlighted by the recent surge in imports.
Growth appears to be slowing faster than previously expected as austerity efforts are stepped up.
We have downgraded our growth and inflation forecast for 2016, which should delay the first Bank of England rate rise, and also limit hikes as the economy slows further in 2017.
EM forecast update: an uneven recovery (page 14)
Further downgrades for emerging market growth as politics generates further disappointments in India and Brazil.
Our China view is little changed – a multi-year slowdown looks to be in progress
Views at a glance (page 20)
A short summary of our main macro views and where we see the risks to the world economy
Important Information: The views and opinions contained herein are those of the author(s) on this page, 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. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.