Macquarie Research, Global Economic Outlook- A difficult couple of months

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Global Economic Outlook
A difficult couple of months
Event
 We revise our outlook for the global economy.
Impact
 It will be a difficult couple of months for the global economy. Developed
economies such as the US and Europe are experiencing a temporary slowing
of growth. This reflects the unfortunate confluence of higher oil prices, supply
chain shocks resulting from the Japanese earthquake, inclement weather and
a more general mid-cycle moderation in growth rates. Meanwhile, emerging
economies are still grappling with high levels of inflation. Hence, markets will
also be faced with policy-driven slowdowns as growth returns to a more
sustainable pace.
 Macquarie Economics' key macro calls are: that the slowdown in US growth
will prove transitory and that Chinese policymakers are ahead of the curve on
inflation and will ease back on policy tightening in the second half of this year.
Hence, while the macro data will continue to look weak for the next 2-3
months, come August/September we expect a significant positive surprise to
current economic and investor sentiment.
Outlook
 In response to weaker-than-expected data during 2Q11, we have revised
down our 2011 US GDP forecast to a still above-consensus 3.1%,
from 3.5% previously. This largely results from a downward revision in our
expectations for growth in 2Q11 as opposed to any change in our view over
the strength of the recovery in 2H11.
 The most recent data from the US, including the ISM manufacturing survey
and payrolls data, has been weak. Moreover, weaker estimates of income
growth suggest that personal consumption growth will be slower than
previously expected. And the supply chain shock from the Japanese
earthquake will weigh on the inventory component of GDP growth in the
current quarter. Indeed, much of the current weakness in the US is from
transitory factors, such as higher oil prices, inclement weather and supply
chain shocks.
 Hence, while these factors will continue to play out in the macroeconomic
data for the next couple of months, we expect an acceleration in growth in
2H11. Low long-term interest rates, a weak US$ and a building capital
expenditure budget from US companies should all contribute to a business
investment and export led recovery.
 Moreover, despite recent market commentary focusing on the possibility of a
double-dip recession, in our view the main risk is not another recession but
rather that the recovery is delayed by a couple of months until 4Q11. That is,
rather than coming through in 2-3 months, that the macro data does not turn
for 4-5 months instead. This could occur if, for example, it takes longer than
expected for Japan to re-establish full supply.