In this month's Olympic-themed Viewpoint, we discuss the race for global growth, the eurozone’s bronze medal performance and the commendable, but not quite Olympic-standard, improvement in emerging markets.
22 August 2016
Forecast update: the race for growth (page 2)
- We have revised our global growth forecast for 2016 to 2.3% from 2.5% following downgrades to the US and Eurozone. Our emerging markets forecasts are unchanged though following evidence of a revival in the region. Growth forecasts for 2017 remain at 2.6% indicating a continuation of the current lacklustre global environment.
- Nonetheless, US growth is set to strengthen and alongside higher inflation this is expected to bring a rate rise from the Federal Reserve (Fed) in December. Fed policy is predicted to tighten further in 2017 as inflation rises. Elsewhere though we see central banks cutting rates further and expanding asset purchases.
- Our scenarios are still skewed toward the downside with secular stagnation seen as the greatest risk. On the upside, prospects for global reflation via a synchronised expansion of fiscal policy have risen although at present the case is being made more by central bankers than finance ministers.
European forecast update: a bronze medal at best (page 7)
- There are few changes to the Eurozone forecast, although France and Italy disappointed. Italy’s banks are under pressure as bad loans mount owing to a stagnant economy. Meanwhile, the European Central Bank (ECB) is considering adding more stimulus. We discuss how it can prolong quantitative easing (QE).
- The UK’s consumers are holding up well, but early signs from producers suggest that Brexit is taking its toll. Our UK forecast remains largely unchanged since our post-Brexit downgrade. The Bank of England (BoE) has responded by lowering rates and restarting QE, and we assume it will do even more. However, its efforts are unlikely to have much of an impact, which leads us to call for more fiscal support.
EM: faster, higher, stronger? (page 14)
- Emerging market performance is set to improve in aggregate, though not yet to Olympian standards. China’s legs are wobbling after sprinting for so long, while Russia faces problems competing both on and off the field. Better news in Brazil where the economy has finally left the starting blocks, and in India where a significant hurdle (the Goods and Services Tax), has been cleared.
Views at a glance (page 19)
- A short summary of our main macro views and the risks to the world economy
Important Information: This communication is marketing material. 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.