August 2015

Global: Strong dollar and cheap oil favour advanced over emerging (page 2)

Our updated forecasts show a modest cut in global growth expectations for this year and a cut in inflation for the advanced economies.

Next year we still see a modest pick up in activity as the world economy responds to lower oil prices, looser fiscal policy and a stabilisation in the emerging economies.

We have not altered our China forecasts, but we remain below consensus and see the mix of a strong dollar and weak commodity prices as a drag on the emerging market complex.

It is not surprising that there are doubts about China’s motivation for devaluing the yuan: on our measures they have a long way to go to restore competitiveness.

European forecast update: stuck in second gear (page 8)

Eurozone growth disappointed in the second quarter as France stagnated, while Germany struggled with weaker export demand against a backdrop of elevated political risk caused by Greece.

Italy continues along its sluggish recovery path, but the bright spot has been Spain, which continues to surpass expectations. Forecasts have been tweaked but the main change is lower inflation.

The UK continues to perform well, and its forecast has been revised up due to historical revisions, a smoother path of fiscal tightening and lower energy prices.

Lower energy prices will keep inflation lower for longer which leads us to push out our forecast for the first BoE rate rise.

EM forecast update (page 12)

A weaker picture for the BRICs this year as domestic concerns and falling commodity prices take their toll. 2016 looks brighter but the skies are still mainly cloudy


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