Download Equity Analysts Economic Outlook_ver2

Equity Analysts’ Economic Outlook
• Investment horizon: 3 – 5 years
• Need long-term economic forecasts
– Equity analysts estimate (nominal) fundamental growth rates for the
stocks they cover using firm-level information from the 10-Ks. They adjust
the growth rates taking into account industry-level information, as well as
real GDP and inflation forecasts.
• Overall economic outlook:
– For the U.S. and Euro area
• Slightly bearish in the short-term – nominal growth rates of about 5 - 5.5% (U.S.) and
3.25 – 3.5 % (Euro zone) in 2011 and about 4.25% - 4.5% (U.S.) and 2.5% - 3.5% (Euro
zone) in 2012
• Long-term – assume US historical average growth of 5.5% - 6%. The Euro area does not
have as long a time series so assume last growth rate forecast to be long-term forecast
– For the Rest of the World
• Slightly more bullish for BRIC – e.g., nominal growth rate for China is forecast to be about
14 – 15% over the next two years
• By definition, emerging markets are expected to have higher growth rates so historical
averages probably do not apply. Assume last growth rate forecast to be long-term
forecast
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• Sources for economic forecasts:
– For the U.S.: Survey of Professional Forecasters
• http://www.philadelphiafed.org/research-and-data/real-time-center/survey-ofprofessional-forecasters/2011/spfq411.pdf
• 45 forecasters surveyed by the Federal Reserve Bank of Philadelphia
• Latest 4Q release has forecasts up to 2014
– For the Euro zone: Survey of Professional Forecasters
• http://www.ecb.int/stats/prices/indic/forecast/html/table_3_2011q4.en.html
• Forecasts from participating financial institutions surveyed by the European Central
Bank
• Latest 4Q release has forecasts up to 2016
– For the Rest of the World: Global Economic Prospects
• http://siteresources.worldbank.org/INTGEP/Resources/3353151307471336123/7983902-1307479336019/Full-Report.pdf
• Semi-annual report from the World Bank
• Latest release (June 2011) has forecasts up to 2013
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