Global Economic Outlook --Central banks take centre stage ::Macquarie Research,

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Global Economic Outlook
Central banks take centre stage
Event
 We revise our outlook for the global economy.
Impact
 The global economy is set for a rocky few months, characterised by risk
aversion in financial markets resulting in weaker economic growth. Indeed,
the situation is escalating beyond European sovereign debt concerns to
envelope European banks and interbank funding markets, and has
repercussions across asset markets. In many regions this will have a flow-on
impact on business sentiment and investment intentions, consumer
confidence and consumption, while currency gyrations may exacerbate an
already slowing global trade cycle. As such we have downgraded the outlook
for growth across most developed markets.
 However, we also expect that the majority of global central banks will be
proactive and respond with strong action to ease financial fears, increase
liquidity and support growth. Indeed, with the 2008/09 financial crisis still a
recent memory, the majority of central banks will be poised to do everything
possible to prevent a repeat and are poised to support growth, even at the risk
to inflation.
Outlook
 Europe has become the centre of attention, with disorderly default or
restructuring the central scenario for Greece, likely followed by Ireland and
Portugal. Moreover, the current financial turmoil is no longer just a sovereign
debt crisis, but a liquidity crisis bordering on a banking crisis. While it isn't as
severe as 2008 (by a large margin), bank deposits at the ECB are rising,
EURIBOR-OIS spreads are widening and there are increasing concerns about
counterparty risk with European banks.
 We have significantly downgraded our 2011 and 2012 GDP growth
forecasts for both Europe and the UK. Europe is now expected to grow by
2.0% in 2011 and 1.2% in 2012, while growth in the UK is expected to remain
even more anaemic at 0.8% in 2011 and 0.9% in 2012.
 We have also downgraded our 2011 and 2012 US GDP growth forecasts,
to 1.7% in 2011 and 2.4% in 2012. This incorporates the growing risks of
financial contagion, but more significantly, a weaker path of consumption
growth in line with the recent disappointing employment growth. Nonetheless,
we still expect a boost to growth over the remainder of 2011, compared to the
anaemic, weather and supply chain impacted, levels seen in 1H11.
 However, contrasted against the slowing expectations for growth, is the action
of central banks globally. Central banks have seen this turn of financial
events previously, and recently. As a result they will remain particularly
vigilant to financial contagion and risks, seek to boost liquidity and remain
focused on growth over inflation.