October 2011 EIU Global Economic ForecastPresentation Transcript
TMGlobal forecasting serviceEconomic forecast summary - November 2011 www.gfs.eiu.com
The economy grew more slowly thanthought in the first half of 2011, in partowing to high gasoline prices. We areforecasting US GDP growth of 1.6% thisyear and 2% in 2012.Fiscal tightening will subtract from growthin 2012-13 but Mr Obama’s stimulus andjobs package will soften the blow,provided it is passed by Congress.The Fed will keep interest rates very lowthrough the first half of 2013. Butdeleveraging will constrain spending.A large overhang of houses will preventa recovery of the property market, withan adverse impact on households’balance-sheets.
Policymakers are struggling to containthe eurozone crisis which has spread tothe large economies of Italy and Spain.The latest plan to resolve the crisis isexpected to comprise coordinated bankrecapitalisation, an expansion of thelending capacity of the EFSF throughguarantees, and an increased write-down of Greek debt. None of thesesteps is without problems.The eurozone economy has slowedsharply since mid-2011 and we nowexpect it to contract, by 0.3%, in 2012,before staging a modest recovery in2013.
The March 11th earthquake and tsunamihave had a severe impact on powersupplies and supply chains.But manufacturing is alreadyexperiencing a V-shaped recovery andthe economy returned to growth in thesecond half. After a contraction of 0.5%in 2011, we forecast GDP growth of2.3% in 2012. From 2013 we expect theeconomy to grow at a rate of just above1%.While the outlook for the global economyremains uncertain, the yen is set toremain strong, creating headwinds formanufacturers.
The Brazilian and Israeli central bankshave responded to the worseningglobal outlook by cutting policy rates.With inflationary pressures nowabating, other EM central banks maycut rates or at least postponemonetary tightening.EMs have lost momentum in thesecond quarter as developed marketshave hit the buffers. China is causingconcern because of stresses in thehousing market. For 2012 we havetrimmed our growth forecasts toreflect sluggish demand in the West.We still expect EMs to outperformtheir developed peers in 2012-16.
Oil consumption growth will dipslightly in 2012 in tandem withweaker global growth. It will averagenearly 2% year on year in 2013-16,led by rising demand in thedeveloping world.The prospect of a resumption ofLibyan output in the next 1-2 yearshas improved the supply outlook.Geopolitical risk remains high,however.Prices will weaken in 2012 in tandemwith weaker demand but will pick upthereafter.
Demand is expected to weaken in 2012owing to a slowdown in the developed worldand somewhat slower growth in thedeveloping worldHowever, rising emerging market incomesand urbanisation will underpin medium-termdemand growthYears of underinvestment, particularly inagriculture, will support pricesNominal prices will remain historically highin 2012-16, albeit slipping from the recentpeaks seen in mid-2008 and early in 2011.Prices will also ease back in real terms.
Faced with persistently highunemployment and the risk of adouble-dip recession, the FederalReserve will keep its policy rate atexceptionally low levels until mid-2013. The Fed is extending thematurity of bonds it holds through itsquantitative easing (QE) programme.In light of the escalation of theeurozone debt crisis, we now expectthe ECB to reverse the rate rises ofApril and July by the end of the year.The ECB has reactivated its termliquidity facilities for banksexperiencing funding stresses.
The support the euro has beenreceiving from a positive interestdifferential in relation to the dollar isfading as debt stresses in the eurozoneperiphery escalate.The yen is currently fulfilling itstraditional role as a safe haven but adeclining domestic savings rate willmake it vulnerable in the medium term.In the short term EM currencies arevulnerable to risk aversion. But over themedium term they will be supported bygrowth and interest rate differentialswith OECD economies.
- The global economy falls into recession 25- The euro zone breaks up 20- Disorderly defaults by developed world-sovereigns rock markets 16- New asset bubbles burst, creating renewed financial turbulence 16- The Chinese economy crashes 15
- Tensions over currency manipulation lead to protectionism 12- Oil prices remain at extremely high levels 12- The US dollar crashes 10- Economic upheaval leads to widespread social and political unrest 9+ Oil prices slump 8
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