June EIU Global Economic Forecast June 2012Presentation Transcript
Global forecasting serviceEconomic forecast summary - June 2012 Master Template 1 www.gfs.eiu.com
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.
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.
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.
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.
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.
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.
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.
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.
+ 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
- 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
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