November 2014

Global forecast update and outlook for 2015 (page 2)

• Global activity undershot expectations in 2014 as the world economy struggled to shake off the malaise of the past three years. Going forward the outlook is for a modest recovery as the fall in energy prices supports consumer spending and reduces business costs, whilst the squeeze from fiscal austerity eases further. Monetary policy is set to diverge with the US and UK tightening whilst loose policy remains the order of the day in the Eurozone and Japan. 
• Risks are still skewed toward more deflationary outcomes, with Eurozone deflation and a hard landing in China. However, we have also increased the probability on a stronger growth and lower inflation outcome to reflect the ongoing fall in energy costs.

Europe: Edging closer to sovereign QE (page 7)

• Weak growth, low inflation, and an inability to depreciate the euro are factors pushing the European Central Bank (ECB) towards sovereign quantitative easing. We expect the recovery to continue, although it will remain unimpressively sluggish. 
• UK growth looks set to moderate after a strong run. Inflation could fall below the Bank of England’s (BoE) lower 1% target, but is likely to help push household consumption higher. BoE likely to remain on hold now until the end of 2015, with limited rate rises from there. Meanwhile, elections in 2015 and the big current account and fiscal deficits could put GBP under pressure.

EM forecast update: No bulls in this China shop (page 15)

• A relatively downbeat EM outlook this quarter, though there are few revisions to the 2015 growth outlook. Weaker oil spells problems for Russia but should help keep inflation low elsewhere, while also providing some growth tailwinds to energy importers like India. Brazil’s election is growth negative, but positive policy shocks could pose upside risks to our 2016 outlook. Meanwhile, China will continue to slow, despite recent stimulus efforts.

Views at a glance (page 20)

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