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June 2011 EIU Global Economic Forecast
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June 2011 EIU Global Economic Forecast

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

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

Published in: Business, Economy & Finance

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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.
  • Transcript

    • 1. Global economic forecast June 10th 2011
    • 2.
      • GDP growth softened to 1.8% in the first quarter as consumer spending and confidence was hit by oil gasoline prices.
      • After two strong months, job creation weakened in May, 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.
    • 3.
      • A strong first quarter augurs well for Germany and other “core” countries but fiscal austerity and high borrowing costs will hold back the periphery.
      • Unable to return to the markets in 2012, Greece needs a top-up loan. We assume the EU/IMF will disburse this although the German government is insisting on “bailing in” the private sector, an idea opposed by the ECB.
      • Portugal received a €78bn bailout in May 2011. We expect Spain to meet its funding needs in the markets
    • 4.
      • The March 11 th earthquake and tsunami are having a servere impact on power supplies and supply chains
      • We have revised down our 2011 GDP forecast to -0.5%. The second quarter will be dire but we expect a recovery in the second half, boosted by a rebound in manufacturing and by reconstruction activity
      • Coordinated international action was taken in March to stem the appreciation of the yen
    • 5.
      • In China massive stimulus has aggravated existing imbalances. Further tightening of monetary policy is needed to tame inflation.
      • Elsewhere in the emerging world, monetary tightening is needed to check inflation. Growth is expected to remain strong on the back of robust domestic demand.
      • Growth in Brazil will slow to 4% as the cental bank tightens policy to control inflation.
      • Russia’s recovery will be supported by higher oil prices
    • 6.
      • Oil consumption will continue to grow strongly in 2011, led by the developing world. Consumption is expected to fall in the EU and Japan
      • Despite the collapse of Libyan output, significant spare capacity in OPEC suggests ample supply. However, any escalation in geopolitical tensions could disrupt our supply forecasts
      • Loose global monetary conditions and investors’ search for return will support prices
    • 7.
      • 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
    • 8.
      • 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.
    • 9.
      • 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
    • 10. 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 - Major sovereigns default as public debt surges - Oil prices remain at extremely high levels
    • 11. 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
    • 12.