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Global forecasting service
Economic forecast summary - June 2012
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macroeconomic information on 187 countries
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Today’s presenter
Jake Statham
Editor-in-Chief, ViewsWire
Economist Intelligence Unit
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Key themes
Global GDP growth of 3.2% at PPP in 2012
Austerity. Euro zone in recession
Greek euro exit still less than 50:50 likely
China likely to avoid “hard landing”
Key threats to global economy:
– Euro crisis, contagion
– Oil shock
– Political risk (Greece, euro zone, China, Russia)
Our headline numbers largely unchanged since last month
We forecast US real GDP growth of 2.2%
in 2012. Consumer spending started the
year strongly, but will decelerate. Growth
is forecast to average 2.3% in 2013-16.
Serious headwinds remain, and our
outlook is still cautious. Job creation
remains uneven, and household
indebtedness is weighing on spending .
Housing market data have improved
recently, but a large overhang of unsold
houses will drag on the property market.
A drastic tightening of fiscal policy is in
prospect in 2013 for the incoming
administration. Congress is likely to
moderate the impending tax rises.
Greek and French election results are
challenging the euro area’s crisis
response. A second election in Greece
could strengthen anti-austerity parties,
putting pressure on the EU/IMF to
soften insistence on austerity.
Sovereign funding costs will spike
again. We expect the euro zone to
survive, but anticipate much turmoil in
2012. The EU’s current bail-out funds
are not large enough to accommodate
Spain, let alone Italy.
We expect euro zone GDP to contract
by 0.7% in 2012. Germany will fare
best; Greece, Portugal and Spain
worst. GDP will recover only slowly
thereafter.
The economy contracted by 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.
Real GDP will grow by at least 1.5% in
2012, boosted by export growth and
reconstruction activity. From 2013 growth
will be constrained by high public
indebtedness and deteriorating
demographics.
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 in 2012.
Growth in 2012 will be constrained by
sluggish OECD demand. EMs will still
comfortably outperform their peers in
the developed world in 2012-16.
Euro downturn will hit EM exports.
Threat to investment and financing in
eastern Europe.
“Post-revolution dividend” in some
Arab countries, especially Libya.
Chinese growth will slow to 8.3% in
2012. Implications for EM commodity
exporters.
Oil consumption growth will 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$113/b
in 2012 as supply concerns offset the
negative impact of weaker demand.
Consumption growth is expected to
slow in 2012, constrained by weak EU
demand 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.
Sluggish demand will be deflationary,
but headline inflation will be elevated
on the back of earlier oil price rises.
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.
We expect the ECB to hold its policy
rate steady at 1% for two years. It
may well need to reactivate its bondbuying and liquidity programmes to
counter market tensions.
Most emerging market central banks
will keep interest rates broadly stable
in 2012.
Europe’s debt crisis will keep the euro
under pressure. We expect an average
2012 rate of US$1.31:€1, before a
weakening in 2013-16.
After a weak start to the year, the yen
has strengthened in recent weeks. We
have raised slightly our yen forecast
given that we expect the currency to
benefit from periods of risk aversion.
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.
+ Unprecedented policy response prevents break-up of euro zone
20
- The global economy falls into recession
15
- The euro zone breaks up
15
+ Stronger than anticipated US growth boosts the global economy
12
- Tensions over currency manipulation lead to protectionism
12
- Social and political disorder undermine stability in China
10
- US dollar crashes
10
- Economic upheaval leads to widespread social and political unrest
9
- An attack on Iran results in an oil price shock
8
- Resumption of monetary stimulus leads to new asset bubbles
8
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