Points de vues - Economic and Strategy Viewpoint

Economic and Strategy Viewpoint - June 2019

This month we update our forecasts for a wobbly world economy, but see green shoots beginning to sprout in Europe.

31/05/2019

Keith Wade

Keith Wade

Economiste et stratégiste

Azad Zangana

Azad Zangana

Économiste senior européen et stratégiste

Craig Botham

Craig Botham

Économiste spécialiste des Marchés émergents

Piya Sachdeva

Piya Sachdeva

Economiste

Forecast update: a wobbly world economy (page 3)

  • Renewed trade tensions and higher oil prices have pushed our forecast in a more stagflationary direction, although monetary policy is expected to be looser as central banks focus on supporting growth whilst inflation remains low.
  • With a relatively slow rate of underlying growth the world economy is vulnerable to shocks and our scenario analysis sees the risks as being skewed to the downside, with the greatest being a US recession in 2020 or a further deterioration in the trade wars.

Europe: green shoots begin to sprout (page 8)

  • European growth has rebounded as a number of temporary headwinds have largely faded. However, external demand remains weak, and as the US-China trade war escalates, the situation could worsen still. We have therefore downgraded eurozone growth in 2019, but also nudged up inflation due to oil prices.
  • The UK growth forecast is revised higher thanks to pre-Brexit stockpiling which has artificially lifted growth figures. However, the delay to Brexit to potentially October means companies will remain cautious. Meanwhile, the risk of a no-deal Brexit is high following PM May's resignation and the likelihood she will be replaced by a hard Brexiteer.

Lower for longer in EM? (page 12)

  • Higher oil prices and renewed trade tensions see largely negative revisions to our emerging market (EM) forecasts this quarter, though there are few dramatic changes.
  • We see slightly more scope for easing, or at least less pressure for hiking, in parts of EM.

Japan: To hike or not to hike (page 17)

  • We warn that investors should proceed with caution after a surprisingly strong Q1 growth, instead focusing on the composition of growth.
  • Worse consumer fundamentals and ongoing external headwinds lead us to downgrade growth for the rest of 2019, although we mechanically upgrade 2019 growth to 0.9% y/y due to Q1 growth surpassing our expectations. For 2020, we nudge down our growth expectation to 0.2% y/y due to the trade war escalation as well as expected higher oil prices.
  • We still think that the VAT hike will go ahead but we now expect the Bank of Japan on be hold.

The full Viewpoint is available below as a PDF.