Economic and Strategy Viewpoint

December 2015

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.


Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Emerging Markets Economist

Keith Wade

Keith Wade

Chief Economist & Strategist

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