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Country Forecast World

  • ID: 2101439
  • August 2015
  • Region: Global
  • 39 Pages
  • The Economist Intelligence Unit

An 11th-hour agreement between Greece and its creditors for a third bail-out programme has averted the immediate risk of a forced Greek exit from the euro zone. But The Economist Intelligence Unit believes that "Grexit" remains more likely than not over the forecast period.

Although the euro zone is less vulnerable to contagion in the event of Grexit than it was in 2012, the crisis has starkly exposed the fault lines in the monetary union. Differences between euro zone member states, including between Germany and France, will make it difficult for policymakers to make progress on measures needed to shore up the zone through greater fiscal integration.

A steep decline in Chinese equity markets in July wiped around US$3trn off valuations and left large numbers of private investors nursing heavy losses. We do not expect this to have much impact on the wider economy but have shaded down our growth forecasts for 2017-19 to reflect slow progress on reforms.

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Country Forecast World

Key changes since June 15th

World growth and inflation
Greece submits to a stiff set of demands from its creditors
Europe is in a stronger position to withstand Grexit than in 2012-13
Emerging markets will continue to struggle in 2015-16
Volatility in capital markets seems likely, a full-blown crisis much less so
The fundamentals of the US economy remain sound
The European economy will continue to grow, regardless of potential Grexit
Risk to oil prices moves to the downside
Will developed marketsand emerging markets continue to diverge?

World growth and inflation: Risk scenarios
Negative scenario-"Grexit" is followed by a euro zone break-up
Negative scenario-A commodity price slump and investment crunch in China entrench the emerging-market slowdown
Positive scenario-A sustained decline in oil prices provides a global economic fillip
Negative scenario-Russia's intervention in Ukraine escalates, leading to cold war-era tensions
Negative scenario-Global monetary policy divergence leads to extreme currency volatility
Negative scenario-The rising threat of jihadi terrorism destabilises the global economy
Negative scenario-The US economy stumbles in the face of monetary tightening and political dysfunction
Negative scenario-Economic upheaval leads to widespread social and political unrest
Positive scenario-Grexit prompts a euro zone economic revival
Negative scenario-A collapse in investment in the oil sector prompts a future oil price shock

Regional summaries: North America
US consumers come roaring back in May
Janet Yellen readies markets for the first interest-rate rise
Barack Obama will embrace the relative freedom of his last year as president
Canada will experience domestic turmoil because of cheaper oil

Regional summaries: Japan
The economy is beginning to strengthen
The weak fiscal position will impinge on policymaking
The BOJ will keep monetary policy very loose, despite signs of dissent
Growth will remain at the mercy of changes to the tax regime

Regional summaries: Western Europe
Greece reaches an 11th-hour bail-out deal with euro zone creditors
Grexit still looks likely in the medium term
A strong first quarter underscores a brighter outlook
ECB stresses its dovish stance
Unemployment remains stubbornly high in the periphery
The UK election result was momentous and has far-reaching consequences

Regional summaries: Transition economies
The Greece crisis creates downside risks for region
Poland and Hungary cut rates as the ECB launches QE
The prospect of an end to bank deleveraging in 2015
Maxidevaluations are being made in the CIS

Regional summaries: Asia and Australasia (excl Japan)
Asia will grow steadily, assisted by low interest rates and inflation
Asia is well prepared to cope with capital volatility
Chinese growth could slow faster than the government wishes

Regional summaries: Latin America
The malaise in Brazil will temper Latin American growth
China's stock market crash could push commodity prices down further
Lower commodity prices will compound an uncertain outlook for capital flows
Banking systems are likely to experience stress as interest rates rise

Regional summaries: Middle East & Africa
The Middle East and North Africa faces an era of lower oil prices
Political unrest will remain a feature across the region
A comprehensive nuclear deal would be a game-changer for Iran and the region
Spreading democracy will aid, but not guarantee, political stability in Africa
Swings in commodity prices will complicate policymaking
The launch of a new free-trade area

Exchange rates
The theme of broad-based US-dollar strength will continue
Emerging-market currencies are likely to come under renewed pressure

World trade
Global trade begins the year slowly
Russia and EU dispute will hurt trade and growth
Medium-term trade growth will not return to pre-crisis levels
The stand-off ends over the limited WTO trade deal
The focus turns to major regional trade deals
Structural changes in international trade will ease global imbalances

Commodity prices
Questions remain around US shale producers' resilience
OPEC producers appear determined to maintain market share
Lower prices will provide only modest support for demand

Global assumptions

Note: Product cover images may vary from those shown
Note: Product cover images may vary from those shown

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