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EIU Global Forecast May 2012
The document provides an economic forecast summary for May 2012 from a global forecasting service. It raises its forecast for 2012 US GDP growth to 2.2% from 1.9% due to reasonably strong economic figures, though job growth slowed in March. The eurozone debt crisis returned as ECB liquidity injections faded, sending bond yields soaring in Spain and Italy. The forecast expects eurozone GDP to contract by 0.7% in 2012, with Germany faring best and Greece, Portugal, and Spain faring worst.
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EIU Global Forecast May 2012
- 1. Global forecasting service Economicforecast summary - May 2012 Master Template 1 www.gfs.eiu.com
- 2. We have raisedour forecast for real GDP growth in 2012 to 2.2% from 1.9%. US economic figures this year have been reasonably strong, especially on the consumer spending front. Serious headwinds remain, and our outlook is still cautious. Job creation slowed in March, and income growth of late has been negative in real terms. Housing market data has improved recently but a large overhang of unsold houses remains a drag on the property market. A drastic tightening of fiscal policy is in prospect in 2013 for the incoming administration.
- 3. The euro zonedebt crisis has returned as the effects of the ECB’s recent liquidity injections fade. Spain’s fiscal misjudgements sent bond yields soaring in late March and April. Yields also rose in Italy, but at a slower pace. As in 2011, the authorities will struggle to keep sovereign funding costs at sustainable levels We expect the euro zone to survive, but anticipate much turmoil in 2012. The EU’s bail-out funds, at present, are not large enough to accommodate Spain. We expect euro zone GDP to contract by 0.7% in 2012. Germany will fare best; Greece, Portugal and Spain worst.
- 4. The economy contractedby 0.7% in 2011, undermined by the negative impact of the March earthquake and tsunami as well as a strong yen that constrained export potential. A recovery in Japan's automotive sector —after the disruption caused by the natural disasters and flooding later in the year in Thailand—will support both industrial output and exports. The economy is expected to grow by 1.5% in 2012, supported by a stronger export performance and reconstruction activity. From 2013 we expect the economy to grow at a rate of between 1-1.5%, a downgrade from prior forecasts.
- 5. Growth in 2012will be constrained by sluggish OECD demand. EMs will still comfortably outperform their peers in the developed world in 2012-16. EM currencies will be sensitive to the “risk-on”, “risk-off” trade, rallying when investors are more tolerant of risk and falling back when investors flock to the US dollar. We have raised our China 2012 GDP forecast to 8.3% from 8.2%, higher than the government’s new medium- term target of 7.5%. Rebalancing the economy away from investment towards private spending will make for less commodity-intensive growth.
- 6. Oil consumption growthwill be constrained in 2012 by the weak OECD economic outlook. It will average nearly 2% year on year in 2013-16, led by rising demand in the developing world. Geopolitical risks are weighing on the supply picture particularly the tensions between the West and Iran. Our forecast assumes a military outcome is avoided. Prices will average around US$115/b in 2012 as supply concerns offset the negative impact of weaker demand.
- 7. Consumption growth isexpected to slow in 2012, constrained by weak EU and growth 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, but prices will ease back in real terms.
- 8. Sluggish demand willbe deflationary but high oil prices will push up headline inflation in coming months. The Fed has said it will keep interest rates very low until late 2014. A further round of quantitative easing appears unlikely if the US economy grows at a reasonable pace. The ECB cut its policy rate twice in 2011 as the regional economic crisis worsened. We expect the ECB to hold its policy rate steady at 1% in 2012. Most emerging market central banks will keep interest rates broadly stable in 2012.
- 9. The return ofEurope’s debt crisis will keep the euro under pressure. We expect an average 2012 rate of US$1.31:€1 vs US$1.39:€1 in 2011. The yen has weakened since the start of the year as risk appetite has recovered somewhat and the Bank of Japan has become more aggressive in easing monetary policy. EM currencies will be supported over the medium term by positive growth and interest rate differentials with OECD economies. China’s decision to allow the renminbi to move in a wider trading ban will increase volatility.
- 10. + Unprecedented policyresponse 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
- 11. - Tensions overcurrency 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
- 13. Access analysis onover 200 countries worldwide with the Economist Intelligence Unit The analysis and content in our reports is derived from our extensive economic, financial, political and business risk analysis of over 203 countries worldwide. You may gain access to this information by signing up, free of charge, at www.eiu.com Click on the country name to go straight to the latest analysis of that country: Further reports are available from Economist Intelligence Unit and can be downloaded at www.eiu.com G8 Countries * Canada * Germany * Japan * United Kingdom * France * Italy * Russia * United States of America BRIC Countries * Brazil * Russia * India * China CIVETS Countries * Colombia * Vietnam * Turkey * Indonesia * Egypt * South Africa Or view the list of all the countries. Should you wish to speak to a sales representative please telephone us: Americas: +1 212 698 9717 Asia: +852 2585 3888 Europe, Middle East & Africa: +44 (0)20 7576 8181 www.gfs.eiu.com
- 14. Access analysis andforecasting of major industries with the Economist Intelligence Unit In addition to the extensive country coverage the Economist Intelligence Unit provides each month industry and commodities information is also available. The key industry sectors we cover are listed below with links to more information on each of them. Automotive Analysis and five-year forecast for the automotive industry throughout the world providing detail on a country by country basis Commodities This service offers analysis for 25 leading commodities. It delivers price forecasts for the next two years with forecasts of factors influencing prices such as production, consumption and stock levels. Analysis and forecasts are split by the two main commodity types: “Industrial raw materials” and “Food, feedstuffs and beverages”. Consumer goods Analysis and five-year forecast for the consumer goods and retail industry throughout the world providing detail on a country by country basis Energy Analysis and five-year forecast for the energy industries throughout the world providing detail on a country by country basis Financial services Analysis and five-year forecast for the financial services industry throughout the world providing detail on a country by country basis Healthcare Analysis and five-year forecast for the healthcare industry throughout the world providing detail on a country by country basis Technology Analysis and five-year forecast for the technology industry throughout the world providing detail on a country by country basis www.gfs.eiu.com
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Editor's Notes
- #3 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.
- #4 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.
- #5 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.
- #7 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.
- #9 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.