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Country Forecast World

  • ID: 2101439
  • May 2016
  • Region: Global
  • 37 Pages
  • The Economist Intelligence Unit
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Following last month's downward revisions to its global GDP growth forecasts, largely driven by downgrades to China, The Economist Intelligence Unit keeps its forecasts largely unchanged this month. We forecast global growth of 2.3% this year, and 2.6% on average over the medium term.

Our forecasts for Brazil now incorporate the impeachment of the president, Dilma Rousseff, of the left-wing Workers Party. Brazilian assets have rallied in expectation of a change to a more market-friendly government. However, we maintain our projection of a muted short- and medium-term growth outlook, given the scale of the political and policy challenges.

Sentiment towards China has bucked on an improved data flow and a stabilisation of the foreign-exchange market. But growth is being driven by rising property prices in tier 1 and tier 2 cities and is coming at the cost of a further build-up of leverage, raising doubts about the sustainability of any upturn. We have kept our China growth forecast-revised downward last month-unchanged.

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Country Forecast World

Key changes since March 14th

World growth and inflation
The global economy calms, but is still set for a sluggish year
Interest rates will remain low in the developed world
Managing the maturation of the Chinese economy is getting trickier
The oil market will eventually tighten, providing some support to prices
Conditions will remain difficult for emerging markets

World growth and inflation: Risk scenarios
Negative scenario-China experiences a hard landing
Negative scenario-Currency depreciation culminates in an emerging-market corporate debt crisis
Negative scenario-"Grexit" is followed by a euro zone break-up
Negative scenario-Beset by external and internal pressures, the EU begins to fracture
Negative scenario-The rising threat of jihadi terrorism destabilises the global economy
Negative scenario-Donald Trump wins the US presidential election
Positive scenario-Global growth surges in 2017 as emerging markets rally
Negative scenario-The UK votes to leave the EU
Negative scenario-Chinese expansionism prompts a clash of arms in the South China Sea
Negative scenario-A collapse in investment in the oil sector prompts a future oil price shock

Regional summaries: North America
US has soft first quarter but remains strongest economy in the OECD
No sign of a recession
The US is set for three more years of economic expansion
Economic growth below 3% is the new normal for the US
Democrats could seize the presidency and the Senate in November
The outlook in Canada is being held down by the oil price

Regional summaries: Europe
A crisis of sovereignty, security and identity
The ECB loosens monetary policy
Slow progress in the euro zone labour market
"Grexit" is still a high risk
The UK faces a period of potential political turmoil
East-Central Europe faces a tough year
Russia will experience a second successive year of recession

Regional summaries: Asia and Australasia
Asia will find rapid growth harder to come by in 2016-20
The risk of a hard landing in China is rising
Economic policy reflects ideological divisions in the government
The Japanese government has unrealistic targets for economic growth
Narendra Modi needs to break legislative deadlock in India
Malcolm Turnbull looks to an early election before reorienting policies

Regional summaries: Latin America
No room for policy stimulus to cushion the downturn
The Brazilian economy will benefit if Ms Rousseff is forced out of office early
In Venezuela our forecasts assume a rescheduling of PDVSA debt

Regional summaries: Middle East & Africa
The Middle East will remain a global instability hotspot in 2016-20
Peace efforts in Libya and Syria will yield no immediate results
Tumbling oil prices will dent economic growth
Low oil prices are pressing governments to reform, but progress will be slow
Lower oil prices are unlikely to trigger widespread social unrest
Growth in Sub-Saharan Africa will recover from 2017, but not significantly
Despite subdued commodity prices, progress on reforms will be slow
El Niño and currency depreciation will push up inflation in 2016
Risk of social unrest and terrorist attacks will remain high

Exchange rates
Continued broad-based weakness in the dollar
A rally in emerging-market currencies is unlikely to mark a turning point

World trade
Global trade entered the new year in its weakest state since 2009
The TPP will boost trade but not until the next decade
Medium-term trade growth will not return to pre-crisis levels
Structural changes in international trade will ease global imbalances

Commodity prices
We expect the price of Brent crude oil to average US$40/b in 2016
Brent will slide in 2019-20, after peaking in 2018
The rebound in non-oil commodity prices is likely to be delayed until 2017

Global assumptions

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