2. The economy grew more slowly than
thought in the first half of 2011, in part
owing to high gasoline prices. We are
forecasting US GDP growth of 1.6% this
year and 2% in 2012.
Fiscal tightening will subtract from growth
in 2012-13 but Mr Obama’s stimulus and
jobs package will soften the blow,
provided it is passed by Congress.
The Fed will keep interest rates very low
through the first half of 2013. But
deleveraging will constrain spending.
A large overhang of houses will prevent
a recovery of the property market, with
an adverse impact on households’
balance-sheets.
3. Policymakers are struggling to contain
the eurozone crisis which has spread to
the large economies of Italy and Spain.
The latest plan to resolve the crisis is
expected to comprise coordinated bank
recapitalisation, an expansion of the
lending capacity of the EFSF through
guarantees, and an increased write-
down of Greek debt. None of these
steps is without problems.
The eurozone economy has slowed
sharply since mid-2011 and we now
expect it to contract, by 0.3%, in 2012,
before staging a modest recovery in
2013.
4. The March 11th earthquake and tsunami
have had a severe impact on power
supplies and supply chains.
But manufacturing is already
experiencing a V-shaped recovery and
the economy returned to growth in the
second half. After a contraction of 0.5%
in 2011, we forecast GDP growth of
2.3% in 2012. From 2013 we expect the
economy to grow at a rate of just above
1%.
While the outlook for the global economy
remains uncertain, the yen is set to
remain strong, creating headwinds for
manufacturers.
5. The Brazilian and Israeli central banks
have responded to the worsening
global outlook by cutting policy rates.
With inflationary pressures now
abating, other EM central banks may
cut rates or at least postpone
monetary tightening.
EMs have lost momentum in the
second quarter as developed markets
have hit the buffers. China is causing
concern because of stresses in the
housing market. For 2012 we have
trimmed our growth forecasts to
reflect sluggish demand in the West.
We still expect EMs to outperform
their developed peers in 2012-16.
6. Oil consumption growth will dip
slightly in 2012 in tandem with
weaker global growth. It will average
nearly 2% year on year in 2013-16,
led by rising demand in the
developing world.
The prospect of a resumption of
Libyan output in the next 1-2 years
has improved the supply outlook.
Geopolitical risk remains high,
however.
Prices will weaken in 2012 in tandem
with weaker demand but will pick up
thereafter.
7. Demand is expected to weaken in 2012
owing to a slowdown in the developed world
and somewhat slower growth in the
developing world
However, rising emerging market incomes
and urbanisation will underpin medium-term
demand growth
Years of underinvestment, particularly in
agriculture, will support prices
Nominal prices will remain historically high
in 2012-16, albeit slipping from the recent
peaks seen in mid-2008 and early in 2011.
Prices will also ease back in real terms.
8. Faced with persistently high
unemployment and the risk of a
double-dip recession, the Federal
Reserve will keep its policy rate at
exceptionally low levels until mid-
2013. The Fed is extending the
maturity of bonds it holds through its
quantitative easing (QE) programme.
In light of the escalation of the
eurozone debt crisis, we now expect
the ECB to reverse the rate rises of
April and July by the end of the year.
The ECB has reactivated its term
liquidity facilities for banks
experiencing funding stresses.
9. The support the euro has been
receiving from a positive interest
differential in relation to the dollar is
fading as debt stresses in the eurozone
periphery escalate.
The yen is currently fulfilling its
traditional role as a safe haven but a
declining domestic savings rate will
make it vulnerable in the medium term.
In the short term EM currencies are
vulnerable to risk aversion. But over the
medium term they will be supported by
growth and interest rate differentials
with OECD economies.
10. - The global economy falls into recession 25
- The euro zone breaks up 20
- Disorderly defaults by developed world-sovereigns rock markets
16
- New asset bubbles burst, creating renewed financial turbulence
16
- The Chinese economy crashes 15
11. - Tensions over currency manipulation lead to protectionism 12
- Oil prices remain at extremely high levels 12
- The US dollar crashes
10
- Economic upheaval leads to widespread social and political unrest
9
+ Oil prices slump 8
12.
13. The
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