Economic & Strategy Viewpoint
Economic and Strategy Viewpoint - March 2018
Forecast update: Trump pours fuel on the fire
- Continued strength in leading indicators and the announcement of further fiscal expansion in the US have led us to upgrade global growth for 2018 to 3.5%. However, stronger growth is likely to fuel higher inflation particularly in the US where cyclical pressures have built.
- The US Federal Reserve is now expected to raise rates four times in 2018 and twice in 2019 as they lean against the boost from fiscal policy. The US dollar could firm as a result, even as the twin deficits return.
- Our scenario analysis shows the balance of tail risks to be tilted toward stagflationary and reflationary outcomes, both of which contain higher inflation compared to the baseline.
European forecast update: firing on all cylinders
- The eurozone economy is firing on all cylinders. Domestic demand is the key driver of growth, while the recovery in world trade continues to surprise to the upside. In updating our forecast, we find ourselves upgrading growth once again, though inflation is expected to be a little more subdued due to the strength in the euro. Meanwhile, the European Central Bank is preparing the ground for a tightening in policy.
- The UK economy has gone from being one of the strongest economies in the G7 to the weakest. Higher inflation continues to squeeze the living standards of households, while Brexit uncertainty is weighing on business confidence. The UK forecast has been revised up, but only thanks to strong growth in the US and eurozone. Inflation has been revised up, along with our interest rate forecast. The Bank of England is now expected to hike this year due to concerns over supply constraints.
EM forecast update: A brighter outlook
- Stronger global growth should propel trade, benefitting emerging markets and so prompting us to upgrade most of the BRICs. Inflation pressures remain largely under control but will likely necessitate hikes in many cases in 2019.
Views at a glance
- A short summary of our main macro views and where we see 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. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.