Country Forecast World

  • ID: 2101439
  • February 2016
  • Region: Global
  • 39 Pages
  • The Economist Intelligence Unit
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The new year has started badly. Concerns are centring on the Chinese economy amid a renewed sell-off of the stock market and depreciation of the renminbi. The currency adjustment is fuelling fears that China will export deflationary pressures to the rest of world. The Economist Intelligence Unit has lowered its 2016 forecast for the renminbi against the US dollar, but expects a good part of the adjustment to have already taken place. We maintain our China growth forecast unchanged at 6.5%, with a steady deceleration over the medium term.

High and growing inventories have pushed oil prices down to below the US$30/barrel mark. We have cut our average price forecast for dated Brent Blend to US$43/b (US$53/b previously). We continue to expect a modest recovery in the second half of the year as higher-cost producers are squeezed out of the market. We have also revised down our 2016 price forecasts for other commodities.

Emerging-market currencies and risky assets generally have come under renewed pressure. This is likely to persist until market concerns about China and its currency abate.

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Country Forecast World

Key changes since December 9th

World growth and inflation
2016 began with some familiar problems
The performance of the renminbi is of more concern than that of equities
The latest falls in the oil price are divorced from market fundamentals
OECD growth is likely to pick up, but from a very low base
Emerging markets will be hit by capital outflows and cheap commodities
IS attacks are designed to hurt Western economies

World growth and inflation: Risk scenarios
Negative scenario-"Grexit" is followed by a euro zone break-up
Negative scenario-Russia's interventions in Ukraine and Syria precede a new "cold war"
Negative scenario-Currency depreciation culminates in an emerging-markets corporate debt crisis
Negative scenario-Beset by external and internal pressures, the EU begins to fracture
Negative scenario-China experiences a sharp economic slowdown
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
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
Yellen era begins as the Fed raises rates
Domestic economy enjoys strong momentum
Economic growth below 3% is the new normal for the US
Hillary Clinton is the favourite to become the next US president
Politics of fear take hold in the US
The Liberals must now implement their policies in Canada

Regional summaries: Japan
Japan avoids a recession, but growth remains unspectacular
There is little room for manoeuvre on the fiscal front

Regional summaries: Western Europe
A crisis of sovereignty, security and identity
Germany will struggle to shape the response to the border crisis
Paris climate change agreement provides best chance yet for unified action
The euro zone records a weak third quarter
The ECB stresses its dovish stance
Unemployment remains stubbornly high in the periphery
"Grexit" is still a high risk
The UK faces a period of potential political turmoil

Regional summaries: Transition economies
Cheaper oil will help East-central Europe
Russia faces another year of contraction in 2016
Holders of Ukrainian bonds agree to a restructuring deal

Regional summaries: Asia and Australasia (excl Japan)
Oil and China will be the biggest concerns for Asian policymakers
Asia needs to diversify its exports away from China
The Chinese government is battling against a hard landing
Narendra Modi needs to break legislative deadlock in India
The Australian economy remains bullet-proof, despite lower export prices

Regional summaries: Latin America
Only a mild rise in commodity prices is in prospect
Banking systems are likely to experience stress as interest rates rise
Brazil's political crisis diverts attention from necessary economic reforms
The president-elect promises a major policy shift in Argentina

Regional summaries: Middle East & Africa
Troubles in the Middle East and North Africa are spilling over regional borders
Tumbling oil prices will dent economic growth
Low oil prices are compelling the region's governments to reform
The spread of democracy, but also of social unrest
Despite subdued commodity prices progress on reforms will be slow
El Niño will push up food price inflation
Growth will recover from 2017, but not significantly

Exchange rates
A dollar surge early in 2016 amid falling oil prices and China worries
We have revised our renminbi:dollar forecast

World trade
Global trade enters the new year in its weakest state since 2009
Agreement is reached on the TPP
Medium-term trade growth will not return to pre-crisis levels
Structural changes in international trade will ease global imbalances

Commodity prices
Oil prices have yet to find a floor
Brent will slide further 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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