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Global Economics Analyst
Fourth Quarter 2011
Global Economics Analyst: Fourth Quarter 2011 - A Soft Patch, or Something Worse?
The global economy has slowed sharply over the past quarter as sovereign debt concerns in Europe (and the US not so long ago) and volatility in financial markets intensified. Although the hard data remain relatively solid, the more forward-looking survey data have been weak across the world. The latest complete batch of PMI surveys imply that global growth is tracking at a 2.4%qoq annualised pace (measured on a PPP-weighted basis), well below our Q3 global growth forecast of close to 4%. This marks the sixth straight month of deceleration since the implied monthly growth rate peaked at 5.8%qoq annualised in February.
And whereas there was no further deterioration in the momentum of our September Advanced Global Leading Indicator, it remains firmly in negative territory too. So with financial market pressure still front and centre, it remains to be seen whether there is further transmission of the recent financial stress to economic fundamentals. That, in turn, will determine whether we are passing through a soft patch in global growth, or are on the cusp of something worse—a recession in the US and maybe Europe too.
In the US our central forecasts look for sub-par growth of 1.6% in 2011, accelerating only very modestly to 2% in 2012. But we have also highlighted that we see a one-in-three chance of a renewed recession over the next year, with the main risks a deterioration of the Euro-zone financial crisis and a greater-than-expected fiscal tightening. We expect monetary policy to remain supportive: the Fed has delivered additional easing through a firmer commitment to keeping short-term interests rates low and by extending the duration of its balance sheet. But fiscal policy would be a more powerful instrument and we see little chance of significant additional fiscal stimulus at the moment.
Despite the sharp slowdown in the surveys, the latest data continue to point to moderate growth in Q3 in the Euro area, and our central forecasts now call for real GDP to grow by 1.7% in 2011, before easing to 1.3% in 2012. But there are clear downside risks here too: the tension in financial markets and bank funding stresses could cause a broader credit crunch, tipping some of the more vulnerable areas into recession even as the core countries continue to deliver growth. We have lowered our growth forecasts in the UK also, given the combination of financial market tensions and higher bank funding costs, increased austerity in the Euro area and softer global growth. We now expect real GDP to grow by just 1.4% in 2011, and by 2.3% in 2012. We also expect the MPC to shift to a more accommodative stance, with a forecast of a second round of asset purchases before year-end.
In Japan, we expect growth to turn positive in Q3 as supply chains disrupted by the March earthquake appear to have largely recovered. But from here, growth will depend heavily on global demand as the initial boost from the reconstruction effort fades. The strength of the Yen is an additional persistent drag, and we think the government will continue to intervene if necessary. We expect growth to be modestly negative for the full year of 2011, and then recover to 2.6% in 2012.
Beyond the developed world, the performance of China and the other large emerging markets(EM) will also be important to the global picture and asset market reaction. Our own global growth forecasts still embed the relatively optimistic assumption that it is policy more than growth that will adjust in EM, as a softer external environment is offset by policy shifts. Activity data from EM has shown a few cracks, especially in the more export oriented economies, but is still resilient relative to the advanced economies. The recent news on policy has also been mixed, with easing priced into several EM curves, and actually delivered in Brazil, but continued hawkish rhetoric from China and an interest rate hike from India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Global Economics Analyst
Fourth Quarter 2011
Global Economics Analyst: Fourth Quarter 2011 - A Soft Patch, or Something Worse?
The global economy has slowed sharply over the past quarter as sovereign debt concerns in Europe (and the US not so long ago) and volatility in financial markets intensified. Although the hard data remain relatively solid, the more forward-looking survey data have been weak across the world. The latest complete batch of PMI surveys imply that global growth is tracking at a 2.4%qoq annualised pace (measured on a PPP-weighted basis), well below our Q3 global growth forecast of close to 4%. This marks the sixth straight month of deceleration since the implied monthly growth rate peaked at 5.8%qoq annualised in February.
And whereas there was no further deterioration in the momentum of our September Advanced Global Leading Indicator, it remains firmly in negative territory too. So with financial market pressure still front and centre, it remains to be seen whether there is further transmission of the recent financial stress to economic fundamentals. That, in turn, will determine whether we are passing through a soft patch in global growth, or are on the cusp of something worse—a recession in the US and maybe Europe too.
In the US our central forecasts look for sub-par growth of 1.6% in 2011, accelerating only very modestly to 2% in 2012. But we have also highlighted that we see a one-in-three chance of a renewed recession over the next year, with the main risks a deterioration of the Euro-zone financial crisis and a greater-than-expected fiscal tightening. We expect monetary policy to remain supportive: the Fed has delivered additional easing through a firmer commitment to keeping short-term interests rates low and by extending the duration of its balance sheet. But fiscal policy would be a more powerful instrument and we see little chance of significant additional fiscal stimulus at the moment.
Despite the sharp slowdown in the surveys, the latest data continue to point to moderate growth in Q3 in the Euro area, and our central forecasts now call for real GDP to grow by 1.7% in 2011, before easing to 1.3% in 2012. But there are clear downside risks here too: the tension in financial markets and bank funding stresses could cause a broader credit crunch, tipping some of the more vulnerable areas into recession even as the core countries continue to deliver growth. We have lowered our growth forecasts in the UK also, given the combination of financial market tensions and higher bank funding costs, increased austerity in the Euro area and softer global growth. We now expect real GDP to grow by just 1.4% in 2011, and by 2.3% in 2012. We also expect the MPC to shift to a more accommodative stance, with a forecast of a second round of asset purchases before year-end.
In Japan, we expect growth to turn positive in Q3 as supply chains disrupted by the March earthquake appear to have largely recovered. But from here, growth will depend heavily on global demand as the initial boost from the reconstruction effort fades. The strength of the Yen is an additional persistent drag, and we think the government will continue to intervene if necessary. We expect growth to be modestly negative for the full year of 2011, and then recover to 2.6% in 2012.
Beyond the developed world, the performance of China and the other large emerging markets(EM) will also be important to the global picture and asset market reaction. Our own global growth forecasts still embed the relatively optimistic assumption that it is policy more than growth that will adjust in EM, as a softer external environment is offset by policy shifts. Activity data from EM has shown a few cracks, especially in the more export oriented economies, but is still resilient relative to the advanced economies. The recent news on policy has also been mixed, with easing priced into several EM curves, and actually delivered in Brazil, but continued hawkish rhetoric from China and an interest rate hike from India.
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