June 2016

Forecast update and scenarios: rising political risk (page 2)

  • An improvement in the outlook for Europe helps keep global growth on track in the coming year despite downgrades to our forecasts for the US and Japan. Inflation is set to pick up on the back of higher oil prices, but the impact is offset in some economies by weaker core rates. Both the Federal Reserve (Fed) and Bank of England (BoE) are expected to tighten this year, but rate rises will be tempered by a limited pick-up in wages.
  • We introduce two new scenarios: “Trade wars” and “Brexit shakes the EU” to reflect the increase in political risk in the world economy. The balance of probabilities is still skewed toward weaker growth, but by less than in Q1 as a result of the reduced risk of a China hard landing or US recession.

Eurozone growth upgraded as UK slows on Brexit fears (page 7)

  • Better-than-expected growth data for the Eurozone have prompted upward revisions to our forecast. However, inflation remains too low for comfort and suggests the recovery still has some way to go.
  • The UK seems to be too busy arguing over Brexit, causing growth to slow as companies take fright. The economy should rebound strongly in the second half of 2016 if the UK votes to remain, but 2017 should see even slower growth as fiscal austerity resumes.

Emerging markets: looking on the bright side (page 12)

  • Though 2016 is likely to be another tough year for the BRIC economies, there are signs that 2017 will see an improvement, overall. The worst is probably behind us in Russia and Brazil. China though will continue to slowdown, but avoid crisis for now.

Views at a glance (page 18)

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