Economic and Strategy Viewpoint - December 2017


Page 3: From goldilocks to reflation

  • We are upgrading our global growth forecast for 2018 to 3.3% from a previous estimate of 3.0%. This marks a modest acceleration from 2017, which is also upgraded to 3.2% from 3%. Improving global trade and looser fiscal policy in the US account for much of this and, if our forecast is correct, 2018 will be the strongest year for global growth since 2011.
  • However, unlike 2017 when inflation surprised on the downside, we see inflation picking up as cost pressures build and prices catch up with the strength of activity. Tail risks are more skewed to reflation than deflation and we have a tighter path for monetary policy from the Federal Reserve, European Central Bank and Bank of Japan.

Page 7: European forecast update: upside risks return

  • The eurozone is booming. Strong data for the third quarter coupled with upgrades to historic data have led us to revise up our GDP growth forecast. Leading indicators have also turned, and are once again suggesting a further acceleration in growth. Due to a spike in global oil prices, inflation has been revised up too. This could be a problem for monetary policy, which remains on a dovish path. How long can this last?
  • The UK forecast is on track, however, extending projections into 2019 means exploring Brexit and its potential impact on near-term growth and inflation. We assume a transition deal, but not one that includes full access to the single market. At the same time, the Bank of England is likely to wait until after Brexit to raise interest rates again, and in the meantime, is likely to consider its long-term projections of productivity and equilibrium interest rates.

Page 14: EM forecast update: A brighter outlook

  • A mostly strong performance in 2017 sees upgrades to our BRIC forecasts, with the exception of India. The other economies are seeing an improved growth-inflation trade off and, in the case of Brazil and Russia, accelerating growth as recoveries take hold.

Page 20: Views at a glance

  • A short summary of our main macro views and where we see the risks to the world economy.

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