Analyse fra BNP Paribas:
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Global growth is likely to be just 2.9% in 2015, its lowest since 2009.
Things will be only a little better in 2016, when we see growth of 3.1% (0.8pp below our previous forecast).
We have revised down our inflation forecasts for the advanced countries; we now see the average rate picking up from 0.3% this year to 1.5% next.
We have scaled back our forecast of Chinese economic growth and see downside risk to our estimates of the official GDP data, especially if policy implementation slides.
We expect the US Fed to tighten in December and the ECB to ease further. The JPY is likely to weaken as the Fed tightens, so we see no BoJ action
. Bond yields are likely to rise modestly over our forecast period, but our projection of the fed funds rate topping out at 2.5% should keep Treasury yields below 3%.
The ECB is likely to extend its QE programme beyond September 2016. With the US economic outlook diverging from that of the rest of the world, we expect the USD to be strong, ending 2015 at 1.06 to the EUR and hitting 1.02 by Q4 2016.
We forecast USDJPY at 134 at end 2015 and 137 at end 2016. We have revised down our global growth forecasts since our last Global Outlook. We now see growth of only 2.9% in 2015, its lowest since 2009 and 0.2pp down on our June forecast. We have knocked 0.8% off our 2016 estimate (now 3.1%) and foresee growth of 3.5% in 2017. In terms of revisions to our global inflation forecasts, we have gone in opposite directions for advanced economies and emerging markets.
We have cut our estimates of advanced-economy inflation by 0.2pp this year and 0.5pp next to take into account the effects of weaker commodities. We have raised our emerging-market inflation forecasts, in contrast, by 0.5pp this year and 0.8pp next, largely because of currency weakness. The net overall effect is a slight rise in our global inflation forecast, reflecting the stickiness of advanced-country inflation compared with that of emerging markets (where our forecast of 200% Venezuelan inflation in 2016 stands out).
The recent turmoil in global markets is both a reflection of worse economic developments, particularly in China and other emerging markets, and a transmission mechanism for those poorer dynamics to be spread round the global economy. There has been evidence in a number of surveys – Michigan consumer sentiment, regional US manufacturing surveys and the ZEW index, for example – that August’s turbulence may have affected sentiment.
So far, however, there has been little evidence of any impact on the hard data, prompting uncertainty about global growth and inflation dynamics, as both the Fed and the ECB have acknowledged. We have consequently opted to revise down growth by a meaningful, but still relatively modest, amount and we will re-examine the figures as more evidence becomes available.
The epicentre of concern is China, where a small devaluation, a big equity-market correction, weak imports and large capital outflows all herald a worsening of its economic prospects. We have revised down our forecasts for China. We expect the authorities to report growth of 6.8% this year and 6.5% next; our forecasts are for the official growth figures. Doubts about China’s statistics are frequently expressed and it is difficult to be sure of the true level of growth.
However, it is the dynamic that really matters to the world economy and we think a slowdown that continues into next year is the most likely outcome. We expect further policy initiatives from China, with October a likely month for announcements. The downside risks lie in a more modest package than expected and/or poorer implementation than usual, which appears to have been an issue this year. US domestic demand is robust and the consumer is spending the windfall from lower oil prices, as evidenced by the country’s fairly stable savings ratio.
Housing looks robust, but the woes brought to the manufacturing sector by the effect of low oil prices on investment are being exacerbated by weak foreign demand (with Canada more important than China) and a strong Cutting our 2015 and 2016 growth forecasts Lower inflation in the advanced economies High level of uncertainty over growth and inflation China is the epicentre of economic concern US growth set to slow slightly through 2017
We expect GDP growth of 2.5% this year, slowing marginally to 2.3% in 2016 and to less than 2% in 2017 as a consequence of Fed tightening and a slow demographic dynamic. Lower oil prices mean we forecast US inflation to stay weaker for longer, both as a direct effect of and as a contributor to weaker wage growth (real wages are already outstripping productivity growth by a wide margin). We expect US CPI inflation of just 0.1% this year and then 2.0% and 2.5% in 2016 and 2017, respectively.
The Fed took a rain check on a hike at its September Federal Open Market Committee meeting, but it clearly wants to remove its “extraordinary accommodation” and we think it likely to do so in December, unless it hits a major bump in the road. We see steady hiking for most of next year, with a possible pickup in pace in late 2016 or early 2017 as inflation heads through 2% and wages gather pace against a backdrop of unemployment well through the non-accelerating inflation rate of unemployment (NAIRU). European growth should average about 1.5% this year and we see it staying close to this level over the next two years.
The boost to consumer spending should fade over the course of 2016 as inflation picks up (from 0.1% this year to 1.0% in 2016 and 1.4% in 2017) amid pretty flat nominal wage growth (something of a contrast to the US). Keeping forward momentum going and encouraging investment is key to ensuring disinflation does not set in again, as the eurozone’s output gap remains wide. A weak currency looks vital in the face of slow global trade growth.
We expect the ECB to extend its QE programme beyond September 2016. We see this coming in December 2015, when another downward revision of the ECB’s growth and inflation forecasts is likely to suggest a material deterioration from earlier projections and act as motivation for further easing. Japanese growth has been hit by China’s slowdown and we now project an increase in GDP of only 0.4% this year, half our previous forecast. Growth should remain around the same mark in 2016 and 2017. We have also revised down our estimates of Japanese inflation to 0.7% in 2015 and 2016, the latter corresponding to a downward shift of 0.9pp.
Will the BoJ react to this disappointing outcome with further easing policy? We doubt it, as we see the yen remaining weak and we sense little political pressure on the central bank. Fiscal stimulus seems the more likely option if Prime Minister Shinzo Abe wants to boost growth. If monetary policy were to be eased, we think a cut of perhaps 20bp in the interest paid on excess reserves would be the mostly likely course. Easy monetary policy and subdued inflation seem a good recipe for bond yields remaining low, especially as we expect Fed rate normalisation to be slow and steady.
We see a mild bearish trend in US Treasuries, with the 10-year ending this year at 2.35% and 2016 at 2.65%. Our endhiking-cycle fed funds forecast (in 2017) is just 2.5% and recent cycles have ended with the 10- year close to the terminal fed funds rate. European yields will be supported by QE: we see a decline in yields to 0.4% by end year, but thereafter, a gradual rise in inflation and higher Treasuries should deliver a gentle upward tilt to the forecast. We see the 10-year ending 2016 at 0.7%. We see Japanese yields rising to 0.45% by end 2015 as hopes of further monetary easing are dashed and to 0.8% by end 2016.
We believe the lack of synchronisation between the US and other economies – in particular, the lack of monetary synchronisation between the US and most of the rest of the world (the UK being the major exception) – is likely to boost the USD on the foreign exchange market. We see the EURUSD at 1.06 at end 2015 and 1.02 a year later.
We see USDJPY ending this year at 1.34 and next year at 1.37. We project the RMB to end 2015 at 6.53 and to finish 2016 at 6.7, corresponding to a total depreciation of about 5% from today’s spot rate, evenly split between the rest of this year and 2016.
The downside risks to our forecasts (namely, China and the financial-market response to Fed tightening) are clearer than the upside ones (notably, greater economic strength in the US)
