Downward drift across the global economy
The global economy in pictures
Mar 2016
Downward drift across the global economy Central bank forecasts
Growth continues, but our forecasts have drifted towards a world of weaker growth and lower inflation
Global growth forecast trimmed for 2016, led by downgrades to the US, Japan and
Emerging Markets (EM)
GDP growth
0
-1
-2
-3
3
2
1
5
4
7
6
3.4
2.4
1.8
2015
3.6
2.4
1.7
2016
4.4
2.8
1.9
2017
Emerging markets
Overall growth
Developed markets
5
4
3
2
1
0
-1
6
7
9
8
Inflation downgrade for developed markets to reflect lower oil prices, EM inflation upgrade from currency depreciation
Inflation
8.7
7.6
3.0
0.2
2015
3.9
1.0
2016
6.7
3.7
2.0
2017
For 2017, we believe growth will strengthen due to more stable emerging market activity
In this uncertain economic environment, governments will need to respond and central banks can and will need to do more
The Federal Reserve (FED): rate rises delayed (not dodged)
FED
FED expected to delay suspected March rate hike to June and
December due to weaker global growth
The Bank of Japan (BoJ): expect cuts
BoJ
BoJ expected to cut rates to -0.25% by end of 2016 and -0.5% by end of 2017
Europe: comfort in an uncertain world
Europe continues to generate solid and steady growth with acceptably low political risk
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
-1
The 2016 eurozone GDP forecast has been revised from 1.5% to 1.4%, but our 2017 forecast remains unchanged
GDP growth
1.9
1.5
2015
UK
1.9
1.4
2016
Europe
Eurozone inflation forecast for 2016 is set at 0.7% due to low oil prices
Inflation
1.6
3.5
3
2.5
2
1.5
1
0.5
0
-0.5
-1
0.8
0.7
2017 2015 2016 2017
Our forecast for UK GDP growth is set fairly cautiously due to
Brexit uncertainty and the resumption of austerity
2.0
1.6
The European Central Bank (ECB): expect cuts
ECB
ECB likely to cut rates further before end of year with the deposit rate falling to -0.5%
BRICs: has a base been reached?
0
-1
2
1
4
3
6
5
8
7
-2
-3
-4
7.0
6.9
-3.7
China: a slowdown due to low oil prices and currency depreciation
Brazil: a fall in GDP in 2016, followed by positive growth in 2017 as the economy begins to recover
India: continued acceleration, but the quality of both the growth and data behind “2015’s fastest growing major economy” could be questionable
Russia: the worst of the oil shock is over, leading to a forecast of positive (but weak) growth for 2017
GDP growth
7.5
7.9
6.2
Inflation
8.0
2015
6.3
-0.7
2016
-2.8
1.5
1.0
2017
6
5
4
11
10
9
8
7
0
-1
3
2
1
15.3
+15
9.0
5.0
1.5
2015
7.8
5.4
1.9
2016
6.8
5.3
2.1
2017
China Russia Brazil India
The Bank of England (BoE): more cautious
BoE BoE expected to be cautious, delaying hikes until November and then moving only twice, taking rates to
1% in February 2017
People’s Bank of China (PBoC): expect cuts
PBoC
PBoC cut the reserve requirement ratio* last month, which is expected to be followed by a further
2% this year alongside rate cuts
*Reserve requirement ratio is the portion (expressed as a percent) of deposits which banks must have on hand as cash. This is a requirement determined by the country’s central bank.
Source: Schroders as at March 2016.
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