EIU Global Economic Forecast - August 2010
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The document discusses the current state of the global economy as of August 2010, highlighting concerns over weak job creation, inflation, and housing prices. It covers regional economic performance, noting slow recoveries in Europe and Japan, strong growth in India, and resilience in Brazil, against a backdrop of fiscal challenges. The implications of these economic conditions include potential deflation in developed economies and the ongoing effects of the Greek fiscal crisis on European stability.
EIU Global Economic Forecast - August 2010
- 1. For regular updates on the EIU’s global economic forecast, register for free at www.eiu.com/gfs Global economic forecast August 17th 2010
- 2. The recovery has started to soften, with the weakness of private-sector jobs creation giving particular cause for concern Inflationary pressures remain very weak—both the core consumer price index and the core personal consumption expenditure index are hovering just above zero in year-on-year terms House prices have stabilised, but a large stock of houses on the market now or coming in the near future will exert renewed downward pressures on prices
- 3. Europe’s economy is recovering but the fiscal crisis has raised risks The economy is burdened with spare capacity and urgent need for fiscal consolidation Unemployment has risen only moderately owing to wage subsidies, but employment recovery will be slow Greece is likely to need a re-structuring of its government debt despite a massive rescue package
- 4. Export performance in Japan will deteriorate over the remainder of 2010 and into 2011, partly reflecting a deceleration of Chinese growth Urgent fiscal consolidation greatly limits room for further fiscal stimulus beyond measures already approved Weak domestic demand is putting downward pressure on Japanese prices again, so that deflation continues
- 5. Chinese growth has been supported by massive stimulus, but this has aggravated existing imbalances India is growing strongly on the back of robust domestic demand. However, fiscal pressures remain and will act as a constraint on potential growth Brazil has been hit less than expected by the crisis, and is recovering rapidly on solid domestic consumption Russia’s recovery is supported by the rise in oil prices over the past year
- 6. Oil consumption growth will bounce back in 2010, led by the developing world. OECD consumption growth will remain subdued Output restraint and significant spare capacity in OPEC producers suggests ample supply. Any escalation in geopolitical tensions could disrupt our supply forecasts Loose global monetary conditions and investors’ search for return will support prices
- 7. Rising emerging market incomes and urbanisation will underpin medium-term demand growth Years of underinvestment, particularly in agriculture, will push up prices In the near-term, many raw materials suffer from temporary supply shortfalls Gold prices have been strong, fuelled by vibrant investor demand, while fundamentals remain weak. Persistent economic uncertainty will support prices in 2010-11
- 8. The Federal Reserve will not raise its policy rate until the first quarter of 2012 The Greek crisis has triggered ECB bond purchases; the central bank is also now unlikely to raise rates until the second quarter of 2012 Japanese policy rates will be held at emergency levels until early 2012 The European fiscal crisis also raises new concerns for banking sector stability
- 9. Concerns about the US economy have helped to weaken the US$ against the euro in recent weeks Expectations of earlier rate hikes in the US and lingering concerns about the fragility of the euro zone will support the US$ against the euro over the longer term The yen will remain firm against the US$, reflecting heightened risk perceptions and Japanese institutional investors’ home bias
- 10. 15 16 15 12 12 - Protectionism takes hold, undermining globalisation - New asset bubbles burst, creating renewed financial turbulence - The global economy has a double-dip recession as stimulus fades - Developed economies fall into a deflationary spiral - Sovereigns default as public debt spirals out of control
- 11. 10 10 9 8 8 + Confidence revives, prompting a stronger rebound in demand + Emerging-market growth surges - Economic upheaval leads to widespread social and political unrest - The euro zone breaks up - The Chinese economy crashes
- 13. For more detail on the EIU’s global economic forecast, and to be kept up to date on the latest macroeconomic data and analysis, please register for free at www.eiu.com/gfs
Editor's Notes
- #3: The euro zone is forecast to underperform the US in 2009 as it suffers from a massive drop in external demand, the impact of the global financial crisis and the unwinding of domestic imbalances. The US recovery will be driven partly by aggressive fiscal stimulus which will make itself felt from the second half of 2009 and some restocking, after the extensive drawdown of inventories in the first half 2009.
- #4: The euro zone is forecast to underperform the US in 2009, largely reflecting the severe weakness of Germany, which, like Japan, remains highly exposed to the global trade cycle. The US recovery will be driven partly by aggressive fiscal stimulus, which will make itself felt from the second half of 2009.
- #5: The euro zone is forecast to underperform the US in 2009, largely reflecting the severe weakness of Germany, which, like Japan, remains highly exposed to the global trade cycle. The US recovery will be driven partly by aggressive fiscal stimulus, which will make itself felt from the second half of 2009.
- #7: Although we are forecasting steady growth in oil demand in 2011-13, ample supply and capacity will prevent significant price gains. While our forecast suggests markedly lower prices in 2009-13 than in 2008, they are still relatively high in both historical and real terms.
- #9: Policy rates in the largest industrial economies are forecast to remain at ultra-loose levels at least until the end of 2010. Concerns not to inflate fresh bubbles will persuade the Federal Reserve (the US central bank) to start to tighten policy from 2011.