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Global Economic Outlook
All eyes on inflation
Event
We revise our outlook for the global economy.
Impact
The global economy continues to grow robustly. However inflation concerns
and the policy response are dominating the global agenda. Central banks in
developed markets, namely the Federal Reserve and the ECB, are
undertaking differing approaches to commodity price driven inflation concerns.
In emerging markets, China appears ahead of the curve, while some Latin
American policymakers lag.
Outlook
The US continues to show signs of robust growth, and we expect US GDP
growth of 3.7% over 2011. There is the risk of a downside surprise in the
1Q11 GDP data; however, the recovery should continue to gain momentum,
and breadth, during 2Q. With higher oil prices pushing the price of gasoline
higher, we have upgraded our 2011 inflation forecast to 3.0%, from 2.7%
previously. Indeed, headline US producer and consumer prices are currently
rising at around their quickest rate since mid-2008.
There are also early signs that these inflation pressures may be becoming
more entrenched. With housing rents starting to tick up, we expect that core
consumer prices have also troughed, and will start to kick up in coming
months. Inflation expectations have also started to rise, with market TIPS
yields and private inflation expectation surveys both showing gains. But while
inflation expectations have started to rise, they remain manageable at this
stage.
Given the strength of the economic recovery, and higher headline inflation,
the key issue for investors is the likely timing of a monetary policy response
from the Federal Reserve. While investors are focused heavily on the
inflation impact of higher oil prices, the Federal Reserve still sees the inflation
and growth risks as broadly balanced. Certainly there have been some
voices of dissent; however, key policymakers retain a strong pro-growth bias.
As such, we continue to expect that the Federal Reserve will implement the
full US$600b QE2 scheme but that no further extraordinary easing will occur
beyond this. Policymakers are also likely to talk increasingly over 2H11 on
the need to tighten policy, paving the way for asset sales to potentially begin
around year-end, and for rate hikes to commence in 1Q12.
The growth dichotomy between the core and periphery of Europe continues to
play out, with 1.8% GDP growth expected across the region in 2011. In the
core economies, particularly Germany, a large external trade share and
exposure to strong growth in emerging markets, as well as solid income
growth, should continue to propel growth over 2011. While in the periphery,
Portugal is the latest country to ask for assistance
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Global Economic Outlook
All eyes on inflation
Event
We revise our outlook for the global economy.
Impact
The global economy continues to grow robustly. However inflation concerns
and the policy response are dominating the global agenda. Central banks in
developed markets, namely the Federal Reserve and the ECB, are
undertaking differing approaches to commodity price driven inflation concerns.
In emerging markets, China appears ahead of the curve, while some Latin
American policymakers lag.
Outlook
The US continues to show signs of robust growth, and we expect US GDP
growth of 3.7% over 2011. There is the risk of a downside surprise in the
1Q11 GDP data; however, the recovery should continue to gain momentum,
and breadth, during 2Q. With higher oil prices pushing the price of gasoline
higher, we have upgraded our 2011 inflation forecast to 3.0%, from 2.7%
previously. Indeed, headline US producer and consumer prices are currently
rising at around their quickest rate since mid-2008.
There are also early signs that these inflation pressures may be becoming
more entrenched. With housing rents starting to tick up, we expect that core
consumer prices have also troughed, and will start to kick up in coming
months. Inflation expectations have also started to rise, with market TIPS
yields and private inflation expectation surveys both showing gains. But while
inflation expectations have started to rise, they remain manageable at this
stage.
Given the strength of the economic recovery, and higher headline inflation,
the key issue for investors is the likely timing of a monetary policy response
from the Federal Reserve. While investors are focused heavily on the
inflation impact of higher oil prices, the Federal Reserve still sees the inflation
and growth risks as broadly balanced. Certainly there have been some
voices of dissent; however, key policymakers retain a strong pro-growth bias.
As such, we continue to expect that the Federal Reserve will implement the
full US$600b QE2 scheme but that no further extraordinary easing will occur
beyond this. Policymakers are also likely to talk increasingly over 2H11 on
the need to tighten policy, paving the way for asset sales to potentially begin
around year-end, and for rate hikes to commence in 1Q12.
The growth dichotomy between the core and periphery of Europe continues to
play out, with 1.8% GDP growth expected across the region in 2011. In the
core economies, particularly Germany, a large external trade share and
exposure to strong growth in emerging markets, as well as solid income
growth, should continue to propel growth over 2011. While in the periphery,
Portugal is the latest country to ask for assistance
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