September 2016

Forecast update: the race for growth (page 2) 

  • We have revised our global growth forecast for 2016 to 2.3% from 2.5% following downgrades to the US and Eurozone. Our emerging markets forecasts are unchanged though following evidence of a revival in the region. Growth forecasts for 2017 remain at 2.6% indicating a continuation of the current lacklustre global environment.
  • Nonetheless, US growth is set to strengthen and alongside higher inflation this is expected to bring a rate rise from the Federal Reserve (Fed) in December. Fed policy is predicted to tighten further in 2017 as inflation rises. Elsewhere though we see central banks cutting rates further and expanding asset purchases.
  • Our scenarios are still skewed toward the downside with secular stagnation seen as the greatest risk. On the upside, prospects for global reflation via a synchronised expansion of fiscal policy have risen although at present the case is being made more by central bankers than finance ministers.

European forecast update: a bronze medal at best (page 7)

  • There are few changes to the Eurozone forecast, although France and Italy disappointed. Italy’s banks are under pressure as bad loans mount owing to a stagnant economy. Meanwhile, the European Central Bank (ECB) is considering adding more stimulus. We discuss how it can prolong quantitative easing (QE).
  • The UK’s consumers are holding up well, but early signs from producers suggest that Brexit is taking its toll. Our UK forecast remains largely unchanged since our post-Brexit downgrade. The Bank of England (BoE) has responded by lowering rates and restarting QE, and we assume it will do even more. However, its efforts are unlikely to have much of an impact, which leads us to call for more fiscal support.

EM: faster, higher, stronger? (page 14)

  • Emerging market performance is set to improve in aggregate, though not yet to Olympian standards. China’s legs are wobbling after sprinting for so long, while Russia faces problems competing both on and off the field. Better news in Brazil where the economy has finally left the starting blocks, and in India where a significant hurdle (the Goods and Services Tax), has been cleared.

Views at a glance (page 19)

  • A short summary of our main macro views and the risks to the world economy