June EIU Global Economic Forecast June 2012

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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.
  • June EIU Global Economic Forecast June 2012

    1. Global forecasting serviceEconomic forecast summary - June 2012 Master Template 1 www.gfs.eiu.com
    2. We forecast US real GDP growth of 2.2%in 2012. Consumer spending started theyear strongly, but will decelerate. Growthis forecast to average 2.3% in 2013-16.Serious headwinds remain, and ouroutlook is still cautious. Job creationremains uneven, and householdindebtedness is weighing on spending .Housing market data has improvedrecently but a large overhang of unsoldhouses will drag on the property market.A drastic tightening of fiscal policy is inprospect in 2013 for the incomingadministration. Congress is likely tomoderate the impending tax rises.
    3. Greek and French election results arechallenging the euro area’s crisisresponse. A second election in Greecewill strengthen the anti-austerity parties,putting pressure on the EU/IMF tosoften their insistence on austerity.Sovereign funding costs will spikeagain. We expect the euro zone tosurvive, but anticipate much turmoil in2012. The EU’s current bail-out fundsare not large enough to accommodateSpain, let alone Italy.We expect euro zone GDP to contractby 0.7% in 2012. Germany will farebest; Greece, Portugal and Spain worst.GDP will recover only slowly thereafter.
    4. The economy contracted by 0.7% in2011, undermined by the negative impactof the March earthquake and tsunami aswell as a strong yen that constrainedexport potential.Real GDP will grow by at least 1.5% in2012, boosted by export growth andreconstruction activity. From 2013 growthwill be constrained by high publicindebtedness and deterioratingdemographics.A recovery in Japans automotive sector—after the disruption caused by thenatural disasters and flooding later in theyear in Thailand—will support bothindustrial output and exports in 2012.
    5. Growth in 2012 will be constrained bysluggish OECD demand. EMs will stillcomfortably outperform their peers inthe developed world in 2012-16.EM currencies will be sensitive to the“risk-on”, “risk-off” trade, rallying wheninvestors are more tolerant of risk andfalling back when investors flock to theUS dollar.China is expected to grow by asomewhat weaker 8.3% in 2012, butstill stronger than the government’snew medium-term target of 7.5%.Rebalancing the economy away frominvestment towards private spendingwill make for less commodity-intensivegrowth.
    6. Oil consumption growth will beconstrained in 2012 by the weakOECD economic outlook. It willaverage nearly 2% year on year in2013-16, led by rising demand in thedeveloping world.Geopolitical risks are weighing on thesupply picture particularly thetensions between the West and Iran.Our forecast assumes a militaryoutcome is avoided.Prices will average around US$113/bin 2012 as supply concerns offset thenegative impact of weaker demand.
    7. Consumption growth is expected toslow in 2012, constrained by weak EUand growth and somewhat slowergrowth in the developing world.However, rising emerging marketincomes and urbanisation will underpinmedium-term demand growth.Years of underinvestment, particularlyin agriculture, will support prices.Nominal prices will remain historicallyhigh in 2012-16, but prices will easeback in real terms.
    8. Sluggish demand will be deflationary,but headline inflation will be elevatedon the back of earlier oil price rises.The Fed has said it will keep interestrates very low until late 2014. Afurther round of quantitative easingappears unlikely if the US economygrows at a reasonable pace.We expect the ECB to hold its policyrate steady at 1% for two years. Itmay well need to reactivate its bond-buying and liquidity programmes tocounter market tensions.Most emerging market central bankswill keep interest rates broadly stablein 2012.
    9. Europe’s debt crisis will keep the eurounder pressure. We expect an average2012 rate of US$1.31:€1, before aweakening in 2013-16.After a weak start to the year, the yenhas strengthened in recent weeks. Wehave raised slightly our yen forecastgiven that we expect the currency tobenefit from periods of risk aversion.EM currencies will be supported overthe medium term by positive growth andinterest rate differentials with OECDeconomies.China’s decision to allow the renminbito move in a wider trading ban willincrease volatility.
    10. + Unprecedented policy response prevents break-up of euro zone 20- The global economy falls into recession 15- The euro zone breaks up 15+ Stronger than anticipated US growth boosts the global economy 12- Tensions over currency manipulation lead to protectionism 12
    11. - Social and political disorder undermine stability in China 10- US dollar crashes 10- Economic upheaval leads to widespread social and political unrest 9- An attack on Iran results in an oil price shock 8- Resumption of monetary stimulus leads to new asset bubbles 8
    12. Access analysis on over 200 countries worldwide with the Economist Intelligence Unit The analysis and content in our reports is d erived from our extensive econom ic, financial, political and business risk analysis of over 203 countries world wid e. You m ay gain access to this inform ation by signing up, free of charge, at www.eiu.com C lick on the country nam e to go straight to the latest analysis of that country: able from Econom ist Intelligence Unit and can be d ownl ed at www.eiu.com Further reports are avail oad G8 Countries * Canada * Germany * Japan * United Kingdom * France * Italy * Russia * United States of America BRIC Countries * Brazil * Russia * India * China CIVETS Countries * Colombia * Vietnam * Turkey * Indonesia * Egypt * South Africa O r view the list of all the countries. Should you wish to speak to a sales representative please telephone us: Am ericas: + 1 21 2 698 971 7 Asia: + 852 2585 3888 Europe, M id d le East & Africa: + 44 (0)20 7576 81 81 Master Template 13 www.gfs.eiu.com
    13. Access analysis and forecasting of major industries with the Economist Intelligence Unit In ad d ition to the extensive country coverage the Econom ist Intelligence Unit provid es each m onth ind ustry and com m od ities inform ation is also available. The key ind ustry sectors we cover are l isted bel with links to m ore inform ation on each of them . ow Automotive Analysis and five-year forecast for the autom otive ind ustry throughout the world provid ing d etail on a country by country basis Commodities This service offers analysis for 25 l ing com m od ities. It d elivers price forecasts for the next two years with forecasts of factors ead influencing prices such as prod uction, consum ption and stock l evels. Analysis and forecasts are split by the two m ain com m od ity types: “Ind ustrial raw m aterials” and “Food , feed stuffs and beverages”. Consumer goods Analysis and five-year forecast for the consum er good s and retail ind ustry throughout the world provid ing d etail on a country by country basis Energy Anal ysis and five-year forecast for the energy ind ustries throughout the world provid ing d etail on a country by country basis Financial services Analysis and five-year forecast for the financial services ind ustry throughout the world provid ing d etail on a country by country basis Healthcare Anal ysis and five-year forecast for the healthcare ind ustry throughout the world provid ing d etail on a country by country basis Technology Anal ysis and five-year forecast for the technol ogy ind ustry throughout the world provid ing d etail on a country by country basis Master Template 14 www.gfs.eiu.com
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