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Global Economic Outlook
Staying the course against policy risks
Event
We revise our outlook for the global economy.
Impact
The global economy continues to 'stay the course'. Growth in most developed
economies is accelerating while in emerging economies, where inflation is a
larger concern, a policy-driven moderation in growth is likely to be a welcome
development. Nonetheless, risks to our forecasts have heightened this month
as a result of rising oil prices and an increase in macroeconomic policy risks.
Outlook
The US continues to show signs of robust growth, and we expect US GDP
growth of 3.7% over 2011. Leading indicators of the manufacturing and
services sector are in strongly expansionary territory and, most favourably,
the labour market is starting to recover. While we are cognisant of the risk to
consumers from higher gasoline prices, we note that the decline in real
disposable income from the current oil price spike is more than offset by
recent fiscal changes.
We continue to expect that the Federal Reserve will implement the full
US$600bn QE2 scheme but that no further extraordinary easing will occur
beyond this. While voices of dissent over the necessity of the full program of
QE2 are starting to emerge, the Federal Reserve retains a strong pro-growth
bias, and recent concerns over the oil price are likely to ensure that the FOMC
errs on the side of finishing QEII and delaying monetary tightening until 2012.
Given recent signals from the European Central Bank (ECB), we have
upgraded our 2011 year-end policy rate forecast to 1.50%, compared to
our previous expectation that rates would remain on hold until 2012. The first
rate rise is likely to come at the next policy meeting in April, and be the
beginning of a slow tightening cycle, with the next rate hike expected in 3Q11.
The slow tightening cycle is expected to have only a small impact on
European growth. While the peripheral economies will be adversely affected,
the core economies of France and Germany should continue to drive growth
in the region and given their relative size, this should mean that overall growth
momentum will be maintained.
Importantly, we do not expect the enthusiasm for rate tightening to shift to
other developed economies. As mentioned, the Federal Reserve retains a
strong pro-growth bias and is likely to be late to the tightening cycle, most
likely not until 2012. Moreover, both the Federal Reserve and Bank of
England tend to react to underlying inflation metrics which remain subdued
despite the tick up in headline inflation resulting from the oil price spike.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Global Economic Outlook
Staying the course against policy risks
Event
We revise our outlook for the global economy.
Impact
The global economy continues to 'stay the course'. Growth in most developed
economies is accelerating while in emerging economies, where inflation is a
larger concern, a policy-driven moderation in growth is likely to be a welcome
development. Nonetheless, risks to our forecasts have heightened this month
as a result of rising oil prices and an increase in macroeconomic policy risks.
Outlook
The US continues to show signs of robust growth, and we expect US GDP
growth of 3.7% over 2011. Leading indicators of the manufacturing and
services sector are in strongly expansionary territory and, most favourably,
the labour market is starting to recover. While we are cognisant of the risk to
consumers from higher gasoline prices, we note that the decline in real
disposable income from the current oil price spike is more than offset by
recent fiscal changes.
We continue to expect that the Federal Reserve will implement the full
US$600bn QE2 scheme but that no further extraordinary easing will occur
beyond this. While voices of dissent over the necessity of the full program of
QE2 are starting to emerge, the Federal Reserve retains a strong pro-growth
bias, and recent concerns over the oil price are likely to ensure that the FOMC
errs on the side of finishing QEII and delaying monetary tightening until 2012.
Given recent signals from the European Central Bank (ECB), we have
upgraded our 2011 year-end policy rate forecast to 1.50%, compared to
our previous expectation that rates would remain on hold until 2012. The first
rate rise is likely to come at the next policy meeting in April, and be the
beginning of a slow tightening cycle, with the next rate hike expected in 3Q11.
The slow tightening cycle is expected to have only a small impact on
European growth. While the peripheral economies will be adversely affected,
the core economies of France and Germany should continue to drive growth
in the region and given their relative size, this should mean that overall growth
momentum will be maintained.
Importantly, we do not expect the enthusiasm for rate tightening to shift to
other developed economies. As mentioned, the Federal Reserve retains a
strong pro-growth bias and is likely to be late to the tightening cycle, most
likely not until 2012. Moreover, both the Federal Reserve and Bank of
England tend to react to underlying inflation metrics which remain subdued
despite the tick up in headline inflation resulting from the oil price spike.
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