EIU Global Forecast March 2012Presentation Transcript
Global forecasting serviceEconomic forecast summary - March 2012 Master Template 1 www.gfs.eiu.com
The tone of recent data has been fairlystrong. economy has been creating morejobs in recent months. We aremaintaining our 2012 GDP growth at1.8%. But if payroll tax cuts andunemployment benefits are extendedbeyond the end of February, we mayrevise upward our growth forecast.The Fed has signalled that it will keepinterest rates very low through to end of2014, but deleveraging will constrainspending. A further round of quantitativeeasing is possible if the threats ofrecession and deflation re-emerge.A large overhang of houses will preventa strong recovery in the housing market.
The injection of liquidity by the ECB intoeuro zone banking system has easedfunding pressures on banks andsovereigns, notably Italy and Spain.In Greece a deep recession continuesto foment social and industrial unrest.Talks on a restructuring of debt owed toprivate creditors are proving difficult.Greece has yet to satisfy the conditionsset by the EU and IMF for a second,€130bn bail-out. Unless this deal issigned, Greece will default on a€14.5bn bond repayment in March.We expect the euro zone economy tocontract by 0.7% in 2012.
The March 2011 earthquake and tsunamihad a severe impact on power suppliesand supply chains. Industrial productionis now recovering as infrastructure isrebuilt. The strong yen is proving aheadwind for exporters.Strong GDP growth in the third quarterwas not sustained in the fourth quarter,when the economy contracted by 2.3%q-on-q at an annualised rate.Our forecast of GDP growth of 2% in2012 is subject to downside risks giventhe loss of momentum in late 2011. From2013 we expect the economy to grow ata rate of just above 1%.
In response to fears of an economicdownturn, a number of EM centralbanks have cut interest rates or atleast postponed monetary tightening.EM currencies and asset marketshave rebounded since the start of theyear as risk appetite has recovered.EMs lost momentum during 2011 asdeveloped markets struggled. Weforecast a soft landing in China,despite problems in the housingmarket.Growth in 2012 will be constrained bysluggish OECD demand. EMs will stillcomfortably outperform their peers inthe developed world in 2012-16.
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.The prospect of a resumption ofLibyan output in the next 1-2 yearshas improved the supply outlook.Geopolitical risk remains high,however.Prices will average around US$110as 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.
Faced with persistently highunemployment, the Federal Reservewill keep its policy rate atexceptionally low levels until late2014. Another round of quantitativeeasing (QE) is possible.The ECB cut rates twice in late 2011,reversing the two rate rises earlier inthe year. In 2012 we expect the ECBto cut its policy rate from 1% to0.75%.The ECB’s injection of large amountsof liquidity into the euro zone financialsystem has alleviated fundingstresses.
As funding stresses on euro zonebanks and sovereigns have eased, theeuro has rebounded. Having bouncedfrom a recent low of US$1.26, thesingle currency appears to beestablishing a new trading range aboveUS$1.30:€.The yen has weakened as risk appetitehas recovered. But it is likely to remainwell supported until the global economicoutlook becomes clearer.EM currencies have rebounded. Overthe medium term they will be supportedby positive growth and interest ratedifferentials with OECD economies.
- The global economy falls into recession 20- Oil prices remain at extremely high levels 16+ Unprecedented policy response after Greek exit prevents contagion 16- The euro zone breaks up 15- The Chinese economy crashes 15
- Resumption of monetary stimulus leads to new asset bubbles 12- Tensions over currency manipulation lead to protectionism 12- US dollar crashes 10- Economic upheaval leads to widespread social and political unrest 9+ Stronger than anticipated US growth boosts the global economy 8
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