Economic and Strategy Viewpoint - June 2019

Forecast update: a wobbly world economy (page 3)

• Renewed trade tensions and higher oil prices have pushed our forecast in a more stagflationary direction, although monetary policy is expected to be looser as central banks focus on supporting growth whilst inflation remains low.
• With a relatively slow rate of underlying growth the world economy is vulnerable to shocks and our scenario analysis sees the risks as being skewed to the downside, with the greatest being a US recession in 2020 or a further deterioration in the trade wars.

Europe: green shoots begin to sprout (page 8)

• European growth has rebounded as a number of temporary headwinds have largely faded. However, external demand remains weak, and as the US-China trade war escalates, the situation could worsen still. We have therefore downgraded eurozone growth in 2019, but also nudged up inflation due to oil prices.
• The UK growth forecast is revised higher thanks to pre-Brexit stockpiling which has artificially lifted growth figures. However, the delay to Brexit to potentially October means companies will remain cautious. Meanwhile, the risk of a no-deal Brexit is high following PM May's resignation and the likelihood she will be replaced by a hard Brexiteer.

Lower for longer in EM? (page 12)

• Higher oil prices and renewed trade tensions see largely negative revisions to our emerging market (EM) forecasts this quarter, though there are few dramatic changes.
• We see slightly more scope for easing, or at least less pressure for hiking, in parts of EM.

Japan: To hike or not to hike (page 17)

• We warn that investors should proceed with caution after a surprisingly strong Q1 growth, instead focusing on the composition of growth.
• Worse consumer fundamentals and ongoing external headwinds lead us to downgrade growth for the rest of 2019, although we mechanically upgrade 2019 growth to 0.9% y/y due to Q1 growth surpassing our expectations. For 2020, we nudge down our growth expectation to 0.2% y/y due to the trade war escalation as well as expected higher oil prices.
• We still think that the VAT hike will go ahead but we now expect the Bank of Japan on be hold.

The full Viewpoint is available below as a PDF.