July 2011 EIU Global Economic Forecast
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July 2011 EIU Global Economic Forecast

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Read about the EIU's latest global economic outlook in this July 2011 edition.

Read about the EIU's latest global economic outlook in this July 2011 edition.

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  • The euro zone is forecast to underperform the US in 2009 as it suffers from a massive drop in external demand, the impact of the global financial crisis and the unwinding of domestic imbalances. The US recovery will be driven partly by aggressive fiscal stimulus which will make itself felt from the second half of 2009 and some restocking, after the extensive drawdown of inventories in the first half 2009.
  • The euro zone is forecast to underperform the US in 2009, largely reflecting the severe weakness of Germany, which, like Japan, remains highly exposed to the global trade cycle. The US recovery will be driven partly by aggressive fiscal stimulus, which will make itself felt from the second half of 2009.
  • The euro zone is forecast to underperform the US in 2009, largely reflecting the severe weakness of Germany, which, like Japan, remains highly exposed to the global trade cycle. The US recovery will be driven partly by aggressive fiscal stimulus, which will make itself felt from the second half of 2009.
  • Although we are forecasting steady growth in oil demand in 2011-13, ample supply and capacity will prevent significant price gains. While our forecast suggests markedly lower prices in 2009-13 than in 2008, they are still relatively high in both historical and real terms.
  • Policy rates in the largest industrial economies are forecast to remain at ultra-loose levels at least until the end of 2010. Concerns not to inflate fresh bubbles will persuade the Federal Reserve (the US central bank) to start to tighten policy from 2011.

July 2011 EIU Global Economic Forecast July 2011 EIU Global Economic Forecast Presentation Transcript

  • Global economic forecast July 11th 2011
    • GDP growth softened to 1.8% in the first quarter as consumer spending and confidence was hit by oil gasoline prices.
    • After three strong months, job creation weakened in May and June, raising doubts about firms’ willingness to hire.
    • We assume that current weakness is a soft patch and that the economy will regain momentum in the second half.
    • Fiscal tightening and deleveraging will constrain medium-term growth rates.
    • A large overhang of houses is preventing a recovery of the property market, with an adverse impact on households’ balance-sheets.
    • The eurozone economy slowed in the second quarter. Germany and other “core” countries are expected to regain momentum in the second half of 2011. Fiscal austerity and high borrowing costs will hold back the periphery.
    • EU policymakers are working on a second, large package of assistance for Greece.
    • Italian and Spanish bond spreads have spiked, raising concerns about the ability of the third and fourth-largest eurozone economies to raise funding in the markets.
    • The March 11 th earthquake and tsunami are having a servere impact on power supplies and supply chains
    • Second quarter GDP figures will show a steep contraction. But manufacturing is already experiencing a V-shaped recovery and the economy will return to growth in the second half. We forecast GDP growth of -0.5% for the full year.
    • The yen remains firm despite coordinated international action in March to stem its appreciation.
    • In China further monetary tightening may be needed following an increase in the inflation rate to 6.5%.
    • Elsewhere in the emerging world, monetary tightening is also needed to check inflation.
    • As in the developed world, growth momentum has stalled in the second quarter. Our central assumption is that emerging markets regain momentum in the second half.
    • Oil consumption will continue to grow strongly in 2011, led by the developing world. Consumption is expected to be flat in the US and Japan and to fall in the EU
    • The loss of Libyan output has tightened the supply outlook but spare capacity in OPEC should suffice to prevent supply bottlenecks. Geopolitical risk remains high, however.
    • Tighter global monetary conditions will lead to lower prices from the second half of 2011
    • Demand is expected to weaken as monetary tightening bites in the developing world and as stimulus is withdrawn in the mature economies
    • However, rising emerging market incomes and urbanisation will underpin medium-term demand growth
    • Years of underinvestment, particularly in agriculture, will support prices
    • Gold prices will come under pressure in 2012 as interest rates start to rise and investors reduce their holdings
    • Amid high unemployment the Federal Reserve will not raise its policy rate until late in 2012.
    • The ECB raised its policy rate by 25 basis points to 1.25% in April. We expect one more increase in 2011, followed by a further two in 2012.
    • The ECB has made clear its unwillingness to buy more peripheral eurozone government bonds.
    • Japanese policy rates will be held at emergency levels until late 2012.
    • The euro is being supported by a positive interest differential in relation to the dollar, despite debt stresses in the eurozone periphery
    • The yen will be supported by Japanese institutional investors’ home bias but a declining domestic savings rate will make it vulnerable in the medium term
    • Emerging market currencies will continue to be supported by wide interest rate and growth differentials with OECD economies
  • 16 16 16 15 12 - Tensions over currency manipulation lead to a rise in protectionism - China’s economy crashes - New asset bubbles burst, creating renewed financial turbulence - Disorderly defaults by developed sovereigns rock financial markets - Oil prices remain at extremely high levels
  • 10 10 10 9 8 + Oil prices slump - Economic upheaval leads to widespread social and political unrest - The euro zone breaks up - The US dollar crashes - Developed economies suffer stagflation
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