EIU Global Forecast May 2012Presentation Transcript
Global forecasting serviceEconomic forecast summary - May 2012 Master Template 1 www.gfs.eiu.com
We have raised our forecast for real GDPgrowth in 2012 to 2.2% from 1.9%. USeconomic figures this year have beenreasonably strong, especially on theconsumer spending front.Serious headwinds remain, and ouroutlook is still cautious. Job creationslowed in March, and income growth oflate has been negative in real terms.Housing market data has improvedrecently but a large overhang of unsoldhouses remains a drag on the propertymarket.A drastic tightening of fiscal policy is inprospect in 2013 for the incomingadministration.
The euro zone debt crisis has returnedas the effects of the ECB’s recentliquidity injections fade. Spain’s fiscalmisjudgements sent bond yieldssoaring in late March and April. Yieldsalso rose in Italy, but at a slower pace.As in 2011, the authorities will struggleto keep sovereign funding costs atsustainable levels We expect the eurozone to survive, but anticipate muchturmoil in 2012. The EU’s bail-outfunds, at present, are not large enoughto accommodate Spain.We expect euro zone GDP to contractby 0.7% in 2012. Germany will farebest; Greece, Portugal and Spain worst.
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.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.The economy is expected to grow by1.5% in 2012, supported by a strongerexport performance and reconstructionactivity. From 2013 we expect theeconomy to grow at a rate of between1-1.5%, a downgrade from priorforecasts.
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.We have raised our China 2012 GDPforecast to 8.3% from 8.2%, higherthan the government’s new medium-term target of 7.5%. Rebalancing theeconomy away from investmenttowards private spending will make forless commodity-intensive growth.
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$115/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 deflationarybut high oil prices will push upheadline inflation in coming months.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.The ECB cut its policy rate twice in2011 as the regional economic crisisworsened. We expect the ECB tohold its policy rate steady at 1% in2012.Most emerging market central bankswill keep interest rates broadly stablein 2012.
The return of Europe’s debt crisis willkeep the euro under pressure. Weexpect an average 2012 rate ofUS$1.31:€1 vs US$1.39:€1 in 2011.The yen has weakened since the startof the year as risk appetite hasrecovered somewhat and the Bank ofJapan has become more aggressive ineasing monetary policy.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 after Greek exit prevents contagion 16- An attack on Iran results in an oil price shock 15- 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- The Chinese economy crashes 10- US dollar crashes 10- Economic upheaval leads to widespread social and political unrest 9- Resumption of monetary stimulus leads to new asset bubbles 8
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