Global economic forecast June 10th 2011
<ul><li>GDP growth softened to 1.8% in the first quarter as consumer spending and confidence was hit by oil gasoline price...
<ul><li>A strong first quarter augurs well for Germany and other “core” countries but fiscal austerity and high borrowing ...
<ul><li>The March 11 th  earthquake and tsunami are having a servere impact on power supplies and supply chains </li></ul>...
<ul><li>In China massive stimulus has aggravated existing imbalances. Further tightening of  monetary policy is needed to ...
<ul><li>Oil consumption will continue to grow strongly in 2011, led by the developing world. Consumption is expected to fa...
<ul><li>Demand is expected to weaken as monetary tightening bites in the developing world and as stimulus is withdrawn in ...
<ul><li>Amid high unemployment the Federal Reserve will not raise its policy rate until late in 2012. </li></ul><ul><li>Th...
<ul><li>The euro is being supported by a positive interest differential in relation to the dollar, despite debt stresses i...
16 16 16 15 12 -  Tensions over currency manipulation lead to a rise in protectionism -  China’s economy crashes -  New as...
10 10 10 9 8 +  Oil prices slump -  Economic upheaval leads to widespread social and political unrest -  The euro zone bre...
 
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June 2011 EIU Global Economic Forecast

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Read about the EIU's latest global economic outlook in this June 2011 edition.

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June 2011 EIU Global Economic Forecast

  1. 1. Global economic forecast June 10th 2011
  2. 2. <ul><li>GDP growth softened to 1.8% in the first quarter as consumer spending and confidence was hit by oil gasoline prices. </li></ul><ul><li>After two strong months, job creation weakened in May, raising doubts about firms’ willingness to hire. </li></ul><ul><li>We assume that current weakness is a soft patch and that the economy will regain momentum in the second half. </li></ul><ul><li>Fiscal tightening and deleveraging will constrain medium-term growth rates. </li></ul><ul><li>A large overhang of houses is preventing a recovery of the property market, with an adverse impact on households’ balance-sheets. </li></ul>
  3. 3. <ul><li>A strong first quarter augurs well for Germany and other “core” countries but fiscal austerity and high borrowing costs will hold back the periphery. </li></ul><ul><li>Unable to return to the markets in 2012, Greece needs a top-up loan. We assume the EU/IMF will disburse this although the German government is insisting on “bailing in” the private sector, an idea opposed by the ECB. </li></ul><ul><li>Portugal received a €78bn bailout in May 2011. We expect Spain to meet its funding needs in the markets </li></ul>
  4. 4. <ul><li>The March 11 th earthquake and tsunami are having a servere impact on power supplies and supply chains </li></ul><ul><li>We have revised down our 2011 GDP forecast to -0.5%. The second quarter will be dire but we expect a recovery in the second half, boosted by a rebound in manufacturing and by reconstruction activity </li></ul><ul><li>Coordinated international action was taken in March to stem the appreciation of the yen </li></ul>
  5. 5. <ul><li>In China massive stimulus has aggravated existing imbalances. Further tightening of monetary policy is needed to tame inflation. </li></ul><ul><li>Elsewhere in the emerging world, monetary tightening is needed to check inflation. Growth is expected to remain strong on the back of robust domestic demand. </li></ul><ul><li>Growth in Brazil will slow to 4% as the cental bank tightens policy to control inflation. </li></ul><ul><li>Russia’s recovery will be supported by higher oil prices </li></ul>
  6. 6. <ul><li>Oil consumption will continue to grow strongly in 2011, led by the developing world. Consumption is expected to fall in the EU and Japan </li></ul><ul><li>Despite the collapse of Libyan output, significant spare capacity in OPEC suggests ample supply. However, 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>Demand is expected to weaken as monetary tightening bites in the developing world and as stimulus is withdrawn in the mature economies </li></ul><ul><li>However, rising emerging market incomes and urbanisation will underpin medium-term demand growth </li></ul><ul><li>Years of underinvestment, particularly in agriculture, will support prices </li></ul><ul><li>Gold prices will come under pressure in 2012 as interest rates start to rise and investors reduce their holdings </li></ul>
  8. 8. <ul><li>Amid high unemployment the Federal Reserve will not raise its policy rate until late in 2012. </li></ul><ul><li>The ECB raised its policy rate by 25 basis points to 1.25% in April. We expect one more increase in 2011, followed by a further two in 2012. </li></ul><ul><li>The ECB has made clear its unwillingness to buy more peripheral eurozone government bonds. </li></ul><ul><li>Japanese policy rates will be held at emergency levels until late 2012. </li></ul>
  9. 9. <ul><li>The euro is being supported by a positive interest differential in relation to the dollar, despite debt stresses in the eurozone periphery </li></ul><ul><li>The yen will be supported by Japanese institutional investors’ home bias but a declining domestic savings rate will make it vulnerable in the medium term </li></ul><ul><li>Emerging market currencies will continue to be supported by wide interest rate and growth differentials with OECD economies </li></ul>
  10. 10. 16 16 16 15 12 - Tensions over currency manipulation lead to a rise in protectionism - China’s economy crashes - New asset bubbles burst, creating renewed financial turbulence - Major sovereigns default as public debt surges - Oil prices remain at extremely high levels
  11. 11. 10 10 10 9 8 + Oil prices slump - Economic upheaval leads to widespread social and political unrest - The euro zone breaks up - The US dollar crashes - Developed economies suffer stagflation

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