Eiu global economic forecast

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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.
  • Eiu global economic forecast

    1. 1. Global economic forecast July 12th 2010
    2. 2. <ul><li>The economy is recovering but growth is heavily driven by short-term factors, such as the end of destocking and massive fiscal and monetary stimulus </li></ul><ul><li>Household demand is subdued as unemployment remains high and the labour market generally weak </li></ul><ul><li>House prices have stabilised, but a large stock of houses on the market now or coming in the near future will exert renewed downward pressures on prices </li></ul>
    3. 3. <ul><li>Europe’s economy is recovering but the fiscal crisis has raised risks </li></ul><ul><li>The economy is burdened with spare capacity and urgent need for fiscal consolidation </li></ul><ul><li>Unemployment has risen only moderately owing to wage subsidies, but employment recovery will be slow </li></ul><ul><li>Greece is likely to need a re-structuring of its government debt despite a massive rescue package </li></ul>
    4. 4. <ul><li>Japan’s recovery will be supported by a significant fiscal boost and strong growth in exports of goods and services </li></ul><ul><li>Wage cuts for workers are still weighing on consumer sentiment </li></ul><ul><li>Urgent fiscal consolidation greatly limits room for further fiscal stimulus beyond measures already approved </li></ul><ul><li>Weak domestic demand is putting downward pressure on Japanese prices again so that deflation continues </li></ul>
    5. 5. <ul><li>Chinese growth has been supported by massive stimulus, but this has aggravated existing imbalances </li></ul><ul><li>India is growing strongly on the back of robust domestic demand. However, fiscal pressures remain and will act as a constraint on potential growth </li></ul><ul><li>Brazil has been hit less than expected by the crisis, and is recovering rapidly on solid domestic consumption </li></ul><ul><li>Russia’s recovery is supported by the rise in oil prices over the past year </li></ul>
    6. 6. <ul><li>Oil consumption growth will bounce back in 2010, led by the developing world. OECD consumption growth will remain subdued </li></ul><ul><li>Output restraint and significant spare capacity in OPEC producers suggests ample supply. Any escalation in geopolitical tensions could disrupt our supply forecasts. </li></ul><ul><li>Loose global monetary conditions and investors’ search for return will support prices. </li></ul>
    7. 7. <ul><li>Rising emerging market incomes and urbanisation will underpin medium-term demand growth </li></ul><ul><li>Years of underinvestment, particularly in agriculture, will push up prices </li></ul><ul><li>In the near-term, many raw materials suffer from temporary supply shortfalls </li></ul><ul><li>Gold prices have been strong, fuelled by vibrant investor demand, while fundamentals remain weak. Persistent economic uncertainty will support prices in 2010-11 </li></ul>
    8. 8. <ul><li>US will start hiking rates in Q3 2011 </li></ul><ul><li>The Greek crisis has triggered ECB bond purchases; the central bank is now unlikely to raise rates until 2012 </li></ul><ul><li>Japanese policy rates to be held at emergency levels until Q4 2011 </li></ul><ul><li>The European fiscal crisis also raises new concerns for banking sector stability </li></ul>
    9. 9. <ul><li>The US$ has been boosted by its role as a safehaven currency for investors concerned about the euro crisis </li></ul><ul><li>While sovereign concerns may fade, expectations of earlier rate hikes in the US will continue to support the dollar </li></ul><ul><li>Despite widespread concerns, the dollar will remain the major global reserve currency for a long time </li></ul><ul><li>The yen will remain firm against the US$, partly reflecting Japanese institutional investors home bias </li></ul>
    10. 10. 15 16 15 12 12 - Protectionism takes hold, undermining globalisation - New asset bubbles burst, creating renewed financial turbulence - The global economy has a double-dip recession as stimulus fades - Developed economies fall into a deflationary spiral - Sovereigns default as public debt spirals out of control
    11. 11. 10 10 9 8 8 + Confidence revives, prompting a stronger rebound in demand + Emerging-market growth surges - Economic upheaval leads to widespread social and political unrest - The euro zone breaks up - The Chinese economy crashes

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