Economic and Strategy Viewpoint
In this month's Viewpoint: Forecast update: recovery trimmed, but on track, Europe: mixed macro and mixed election results, EM forecast update: crumbling BRICs, and Views at a glance.
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- Global recovery continues, but our growth forecast has been shaved as a result of downgrades to both the advanced and emerging economies. The latter face the more significant challenge in adjusting to the post financial crisis world, whilst the former should bounce back with the US in the second quarter. Divergent monetary policy remains a key theme with the Fed and Bank of England expected to raise rates in 2015 while the ECB, BoJ and PBoC are likely to remain on an easing tack.
- The risks to our forecasts are still tilted toward weaker growth and inflation led by a China hard landing, the threat of Eurozone deflation and secular stagnation. However, stagflationary risks have risen as a result of introducing a new scenario, capacity constraints bite, whilst political event risk is present should the Russia-Ukraine crisis deteriorate or a trade war erupt in Asia.
- The European growth figures for the first quarter were very mixed. Some countries such as Germany and Spain are gaining momentum in their recoveries, while others such as Italy and France are failing to impress and are struggling to implement structural and fiscal reforms.
- The European parliamentary election results were also mixed, with euro-sceptic parties making clear gains, but not in all countries. The most worrying results came from France and the UK, where large gains were made by populists, and where they are most likely to influence future results. The wider impact will be to slow EU expansion, which raises the risk of greater Russian influence in the region in the long-term.
EM forecast update: crumbling BRICs (page 13)
- The situation has stagnated or deteriorated for the BRIC countries, with macro disappointments in China, and political concerns in Brazil and Russia. India alone has hinted at a brighter future, but upgrades will have to wait until promises become actions.
Views at a glance (page 19)
- A short summary of our main macro views and where we see the risks to the world economy.