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Country Forecast World

  • ID: 2101439
  • October 2016
  • Region: Global
  • 39 Pages
  • The Economist Intelligence Unit
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The Economist Intelligence Unit's 2016 global growth estimate is unchanged this month at 2.1%, held back by a sub-par performance in the US and recession in Brazil and Russia. Global growth will quicken to 2.4% in 2017 as the US economy picks up and Brazil and Russia emerge from recession.

We expect downside risks to global growth will rise in 2018 as China slows sharply, to 4.2%. In 2019 a short recession in the US will pull the global growth rate down to 2.1%.

In response to continued labour market strength, we now expect the US Federal Reserve (the central bank) to raise interest rates by 25 basis points in the fourth quarter of 2016. This will be followed by a single, 25-basis-point, rise in 2017 as the central bank remains concerned about economic growth prospects.

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Country Forecast World

Key changes since August 15th

World growth and inflation
Central banks are reaching the limits of their capabilities
The US will remain the engine of growth in the OECD-until 2019
Conditions have improved for emerging markets
The build-up of corporate debt in China will require government action in 2018
Brexit exemplifies strong anti-globalisation sentiment

World growth and inflation: Risk scenarios
Negative scenario-China experiences a hard landing
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-Currency depreciation and persistent weakness in commodity prices culminate in emerging-market corporate debt crisis
Negative scenario-Donald Trump is elected as US president
Negative scenario-The rising threat of jihadi terrorism destabilises the global economy
Negative scenario-Chinese expansionism leads to a clash of arms in the South China Sea
Positive scenario-Global growth surges in 2017 as emerging markets rally
Negative scenario-Rising tide of political populism in the OECD results in a retreat from globalisation
Negative scenario-A collapse in investment in the oil sector prompts a future oil price shock

Regional summaries: North America
The US has had a soft start to 2016 but will improve in the second half
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
A recession is likely to wreck Democratic hopes for another two-term presidency
The Canadian economy will bounce back from the wildfires

Regional summaries: Europe
The UK's Brexit vote has had a limited immediate economic impact
Brexit will have damaging political and economic consequences across Europe
Political risk has risen in Italy and Spain
We expect no change to the ECB's zero interest rate policy by 2021
The pace of structural reform in the euro zone has weakened
Central and east European countries face a tough year
Russia will return to growth in 2017 after two years of recession
The failed military coup in Turkey will have long-lasting implications

Regional summaries: Asia and Australasia
Looser monetary policy around the world will benefit Asian economies
Our China outlook diverges significantly from the government's targets
The Japanese government's fiscal stimulus is not as powerful as it looks
The BOJ will come under pressure to change its strategy
India's government will fail to break the legislative deadlock
The new Australian government is facing legislative deadlock

Regional summaries: Latin America
A return to regional growth in 2017
Divergent trends in monetary policy
The new government in Brazil will face opposition to needed reforms

Regional summaries: Middle East & Africa
Low oil prices continue to weigh on economic activity in the Middle East
Economic growth will quicken in 2017-20
Governments are intensifying reform efforts in response to low oil prices
The Middle East will remain a global instability hotspot in 2016-20
Conflict and instability will drag on in Libya and Syria
Growth in Sub-Saharan Africa will recover from 2017, but not significantly
Despite subdued commodity prices, progress on reforms will be slow
Inflation will ease from 2017 as food supplies and exchange rates stabilise
Risk of social unrest and terrorist attacks will remain high

Exchange rates
We expect a slightly stronger euro
Emerging-market currencies continue to attract yield-seeking investors

World trade
Global trade has reached the bottom of its cycle
Ratification of the TPP will see delays
Medium-term trade growth will not return to pre-crisis levels
Structural changes in international trade will ease global imbalances

Commodity prices
An output freeze would not be so big a deal
High stocks will cap the rise in oil prices in 2017-18
Non-oil commodity prices will stage a partial recovery in 2017-21

Global assumptions

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Note: Product cover images may vary from those shown

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