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Country Forecast World Product Image

Country Forecast World

  • ID: 2101439
  • November 2014
  • Region: Global
  • 124 Pages
  • The Economist Intelligence Unit

Global financial markets have been retreating as fears of slower economic growth take hold. The Economist Intelligence Unit continues to expect faster global GDP growth next year than this year, but we have nonetheless trimmed our 2015 forecast, largely because of the weak environment in Europe.

Conditions in the euro zone look increasingly bleak. Germany has been hurt by spillover effects from the sanctions on Russia; industrial production in August fell by the fastest rate since January 2009. We have cut our euro zone GDP growth forecasts in 2015 to 1.1% from 1.2% and in 2016 to 1.4% from 1.7%.

We have reduced our forecast for the price of oil (dated Brent) to US$97.60/barrel in 2015 from US$102.50 previously. Weak growth, particularly in Europe and China, is curbing demand for energy at a time when production, especially in the US, is rising rapidly. OPEC has yet to respond with production cuts.

Country Forecast World

Key changes since September 15th

World growth and inflation
Investors are worried about slowing economic growth
We continue to lower our global GDP forecast
Several bright spots are evident
We are making a number of changes to our country forecasts this month
Financial markets have been acting in an unusual fashion
Oil and the US dollar often move in tandem
Stock and bond markets have also been volatile
Europe is holding back the global recovery
China remains the global star, despite slowing growth
The crisis in Iraq is intensifying
Despite a ceasefire, the crisis in Ukraine is far from over
Many economies remain fragile
Many emerging markets are struggling, but China is in no immediate danger
The US economy is bouncing back
Emerging markets are at risk from rising interest rates in the US
A serious and sustained rout in emerging markets is unlikely
The contagion effect could cause problems to spread
China's acceptance of slower economic growth is a major global trend

World growth and inflation: Risk scenarios
Negative scenario-Deflation derails the economic recovery in the euro zone
Negative scenario-The violent spillover from Syria's civil war overwhelms its neighbours
Negative scenario-Russia's intervention in Ukraine escalates, leading to Cold War-era tensions
Negative scenario-The emerging-market slowdown drags the world back into recession
Negative scenario-The US economy stumbles in the face of monetary tightening and political dysfunction
Negative scenario-Tensions over currency volatility lead to a rise in protectionism
Positive scenario-A rapid recovery in parts of the OECD drives global growth higher
Negative scenario-Economic upheaval leads to widespread social and political unrest
Positive scenario-A sustained decline in oil prices provides a global economic fillip
Negative scenario-Social unrest undermines stability in China

Regional summaries: North America
How long is a "considerable time"?
Structural changes have reduced inflationary pressures
A more dovish Fed ahead
The US economy comes roaring back
Higher wages and lower debt will power economic growth
The housing recovery has been uneven
Business investment is soft, despite record profits
Public spending is set to rebound
The president will resort to executive action to bypass Congress
Canada needs to avoid a "hard landing" in the housing market

Regional summaries: Japan
A higher rate of economic growth remains the Holy Grail of Abenomics
Mr Abe will remain the LDP's central figure
The third arrow of Abenomics has been fired again, with greater conviction
The BOJ is likely to extend its monetary easing programme in 2015
Private non-residential investment remains key to economic growth

Regional summaries: Western Europe
The euro zone drifts into dangerous waters
Not a game-changer
Germany, the growth engine, sputters
France and Italy stumble once again
Peripheral economies provide small comfort
Unemployment remains stubbornly high
EU moves to "phase three" sanctions as Russia tensions worsen
EU reaffirms its sanctions against Russia
EU names new leadership in shadow of Russia crisis
The economic recovery in the UK is feeding through to job creation

Regional summaries: Transition economies
A slowdown in Germany will add to drags on regional growth
The Russian central bank raises rates again in July
The prospect of an end to bank deleveraging later in 2014
The risk of outright recession in Russia is mounting

Regional summaries: Asia and Australasia (excl Japan)
End of US monetary loosening could generate volatility in Asian markets
Medium-term growth would benefit from reform of structural distortions
The Chinese economy appears to be cooling again
Tension in Xinjiang and Hong Kong demands the attention of officials
Narendra Modi is burnishing his foreign policy credentials
A tough stance on inflation generates confidence
The new government in Indonesia will struggle in parliament
The military government in Thailand is to turn its attention to the constitution
The Australian economy remains in rude health

Regional summaries: Latin America
Sliding commodity prices further erode the region's terms of trade
Banking systems likely to experience stress as interest rates rise
Growth remains slow in Mexico but should quicken over the medium term
Dilma Rousseff faces a run-off in Brazil's presidential election
Brazil was in recession in the first half of 2014
Concerns about payment risk in Venezuela

Regional summaries: Middle East & Africa
Faster growth in prospect in 2015
IS has little sway over regional economy
Libya's oil production is recovering strongly, but risks remain high
Looming threats to African growth, but the picture is generally positive
African countries are becoming more dependent on global capital
The impact of Ebola will linger well into 2015 and possibly beyond

Exchange rates
We are changing our US dollar:euro forecast for 2015
Differing policies in the US and the euro zone
The euro may continue to show some resilience
We have revised down our yen forecast
Emerging-market currencies may come under pressure again
Despite pressures on emerging-market currencies, a crisis is not inevitable
The recent depreciations were painful but probably necessary
China's renminbi is appreciating again

World trade
The recovery in global trade continues to struggle
Russia and EU trade dispute will hurt growth and trade
The limited WTO trade deal agreed in Indonesia becomes uncertain
The promise of regional trade agreements begins to fade
Euro zone bank deleveraging is slowing, but trade finance is still struggling
Structural changes in international trade will ease global imbalances

Commodity prices
Oil prices have hit their lowest level since 2012
Supply is surging, particularly in the US
Brent forecast lowered owing to weak fundamentals and strong dollar
Non-metal industrial markets will stay weak
El Niño risks seem to have tempered somewhat recently

Global assumptions

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