In this month's update, we look at how political risks may be fading and macro worries are returning, consider the policy differences between the UK's two major parties, and examine the diverging fortunes of the emerging markets.
Forecast update: political risks fade, macro concerns return (page 3)
- The global recovery remains intact and inflation appears to have peaked as the energy shock fades. Eurozone growth continues to strengthen but elsewhere leading indicators point to more modest expansion in the US, China and Japan.
- Political risks have faded with the election of President Macron in France and following developments in the US, which have seen President Trump soften his stance on protectionism and struggle to gain traction in Congress. More traditional macro concerns return to the fore, skewing risks toward deflation.
European forecast update: from strength to strength (page 8)
- The eurozone continues to outperform expectations, with private business surveys pointing to upside risks. Iberia led the pack in the first quarter, but Germany also enjoyed strong growth. Meanwhile, inflation has risen, but is set to fall back in coming months, easing pressure on the European Central Bank to tighten monetary policy.
- The UK has suffered the slowdown in growth that most economists were expecting. Higher inflation due to the fall in sterling is squeezing household budgets, causing spending growth to slow. This should persist for most of this year, but as inflation falls back, growth should recover.
UK election: from coronation to contest (page 15)
- The election has unexpectedly become more interesting with Theresa May’s lead in the opinion polls more than halving in recent weeks. We consider the key policy differences between the two leading parties.
Emerging markets forecast update: diverging fortunes (page 18)
- Downgrades to most of the BRIC economies as idiosyncratic stories deteriorate, though Brazil and Russia are the worst affected. China escapes unscathed, with a slowdown still expected later this year after a strong first quarter, as tighter policy bites.
Views at a glance (page 26)
- A short summary of our main macro views and where we see the risks to the world economy.
The full Viewpoint can be found as a PDF below.
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The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.