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Economic forecast summary: August 2015
• Economic forecast summary – July 2014
Global forecasting service
www.gfs.eiu.com
US economic outlook
We have edged up our 2015 US growth
forecast to 2.5%. The economy has
rebounded from a poor first quarter and
we expect it to perform well in the second
half.
Consumer spending was slower than
expected early in the year. But it picked
up to 0.6% month on month in May, as
the savings rate declined.
Business investment has been
constrained by a reduction in spending
by shale oil producers.
The strong US dollar is curtailing exports,
which are also suffering from weak global
demand.
US: Real GDP growth
(% change, year on year)
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
2009 10
11
12
13
14
15
16
17
18
19
Source: The Economist Intelligence Unit, Global Forecasting
Service.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Western Europe economic outlook
The risk of Grexit has risen and is set to
persist despite an 11th hour deal
reached between Greece and its euro
zone creditors on July 13th.
Relations between Greece and its euro
zone creditors have been badly
damaged.
Grexit would not have an immediate
impact on the region’s growth outlook
but would create another serious
faultline in EMU.
We forecast 2015 GDP growth of 1.5%
for the euro zone. The region is
benefiting from lower oil prices, the
ECB’s QE programme and a weakening
of the euro over the past 12 months.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Euro zone: Real GDP growth
(% change, year on year)
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
2009 10
11
12
13
14
15
16
17
18
19
Source: The Economist Intelligence Unit, Global Forecasting
Service.
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Japan economic outlook
Real GDP growth in the first quarter of
2015 grew by 1% quarter on quarter
(3.9% annualised). Both private
consumption and investment made hefty
contributions to the growth rate.
Japan: Real GDP growth
(% change, year on year)
6.0
5.0
4.0
The yen has weakened further recently
while the equity rally has continued.
3.0
For 2015 as a whole we expect an
expansion of 1.4% in 2015, rising to 2%
in 2016.
1.0
Another increase in the consumption
tax—to 10% in April 2017—will cause
growth to slow to 1.3% in that year.
The prospect of consistent GDP growth
of 2% and above, as Abenomics is
targeting, remains some distance away.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
2.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
2009
10
11
12
13
14
15
16
17
18
Source: The Economist Intelligence Unit, Global Forecasting
Service.
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
19
Emerging market economic outlook
Emerging markets face a testing few
months as we expect the Fed to
embark on a monetary tightening
cycle in September. This will draw
capital back to the US and support
further dollar appreciation.
The stock market plunge in China
wiped US$3trn off valuations. But we
expect only a modest impact on the
wider economy.
Countries dependent on oil for fiscal
or export revenue are having to
tighten their belts.
China, India, South Korea and Turkey
are among the countries set to benefit
from lower oil prices.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Non-OECD
Real GDP growth
OECD
(% change, year on year)
World
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
2009 10
11
12
13
14
15
16
17
18
19
Source: The Economist Intelligence Unit, Global Forecasting
Service.
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Oil price and demand outlook
Oil prices and demand
7.0
120
6.0
110
5.0
100
4.0
90
3.0
80
2.0
70
1.0
60
0.0
50
-1.0
40
-2.0
30
-3.0
20
2009 10
11
12
13
14
15
16
17
18
19
Demand (% change; av; left scale)
Nominal price (US$/b; dated Brent; right scale)
Brent prices have fallen in recent
weeks, owing to the expectation that
a comprehensive deal on Iran’s
nuclear programme would be signed,
enabling exports to rise substantially.
We have not moved our forecast, as
we had expected such a deal to be
agreed.
Oil will remain oversupplied this year
as the US and OPEC continue to
battle for market share. Although
proving resilient, growth in US shale
production will eventually slow.
We forecast that prices will rise
gradually, from an average of
US$60/b in 2015 to US$89 in 2019.
Sources: International Energy Agency; The Economist Intelligence Unit; IMF, International Financial Statistics.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Non-oil commodities outlook
Industrial raw materials index
(1990=100)
IRM index
FFB index
300
An overhang of supply in major
markets will remain a drag on industrial
raw materials prices in 2015-16.
The slowdown in China’s economy will
weigh on major industrial commodities.
Other emerging markets (many of
which face economic headwinds and
currency depreciation) do not have the
demand to soak up the excess supply.
250
200
150
100
50
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
0
Large harvests will help to bring down
prices for our food, feedstuffs and
beverages index. Major stockpiles will
need to be worked through in 2015,
keeping prices soft. The biggest upside
risk remains a significant El Niño
phenomenon, which reduces harvests.
Note: IRM index includes base metals, natural rubber and
fibres.
Source: The Economist Intelligence Unit, Global Forecasting
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Monetary policy outlook
UK base rate
US federal funds rate
Japan overnight call rate
Euro zone refi rate
Interest rates
(%)
7.0
6.5
6.0
5.5
5.0
In the light of stronger high-frequency
data in the US, we maintain our
forecast that the Fed will embark on
a tightening cycle this year. We
expect the first rise in the policy rate
in September.
The ECB’s €60bn monthly bondbuying programme, launched in
March, will last at least until
September 2016.
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
2009 10
11
12
13
14
15
16
17
18
19
Monetary policy in emerging markets
is following divergent trends. Many
countries eased policy early in 2015.
In countries with strong dollar links
interest rates may have to track US
rates higher later in the year.
Source: Haver Analytics.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Currency outlook
After pausing in March-April, the US
dollar’s rally against most other major
currencies resumed in May.
US$:€ exchange rate
1.5
(av)
Divergent outlooks for growth and
monetary policy will push the dollar
higher against the euro, the yen and
many EM currencies. For 2015 we
forecast an average dollar:euro
exchange rate of US$1.07:€. In 2016
we expect the rate to dip below parity.
1.4
1.3
1.2
1.1
1.0
0.9
2009 10
11
12
13
14
15
16
17
18
19
EM currencies are likely to remain
under pressure but in the medium term
should gain support from positive
growth differentials relative to OECD
economies.
Source: The Economist Intelligence Unit, Global Forecasting
Service.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Forecast risks
Intensity
Scenario
-
“Grexit” is followed by a euro zone break-up
20
-
Commodity slump and investment crunch in China entrench EM slowdown
20
+
Lower oil prices provide a global economic fillip
20
-
Russia’s military intervention in Ukraine revives Cold War-era tensions
16
-
Global monetary policy divergence leads to extreme currency volatility
16
Risk intensity is a product of probability and impact, on a 25-point scale
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Source: The Economist Intelligence Unit, Global Forecasting Service.
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Forecast risks continued
Intensity
Scenario
-
The rising threat of jihadi terrorism destabilises the global economy
12
-
US economy stumbles in the face of monetary tightening
10
-
Economic upheaval leads to widespread social and political unrest
9
+
A “Grexit” prompts a euro zone economic revival
8
-
A collapse in investment in the oil sector prompts a future oil price shock
4
Risk intensity is a product of probability and impact, on a 25-point scale
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Source: The Economist Intelligence Unit, Global Forecasting Service.
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
Summary
Real GDP, 2014
World GDP
(% change, year on year)
(% change, year on year)
11.0
6.0
10.0
5.0
Market exchange rates
PPP exchange rates
9.0
4.0
8.0
7.0
China
India
3.0
2.0
6.0
5.0
4.0
3.0
1.0
ASEAN
Africa
0.0
Middle
East
Latin
AmericaEastern
Europe
2.0
US
-1.0
UK
-2.0
1.0
CIS
-3.0
0.0
Euro
zone
-1.0
Japan
2009 10
11
12
13
14
15
16
17
18
19
Source: The Economist Intelligence Unit, Global Forecasting Service.
US
Western
Europe
Japan
Emerging
markets
Oil
Non-oil
commodities
Monetary
policy
Currency
Forecast
risks
Forecast
risks (cont.)
Summary
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