Quarterly Economic Forecast - Global
Transcription
Quarterly Economic Forecast - Global
QUARTERLY ECONOMIC FORECAST TD Economics December 17, 2014 GLOBAL OUTLOOK: COUNTING ON AMERICA Highlights • The theme of divergence continues to echo across the global economy. Economic activity has materially accelerated in America, but growth is sputtering in the euro zone and Japan, while the slowdown continues in China. • As a result of weak demand outside North America, we have downgraded our expectations for the global economy. We now anticipate global growth to decelerate from 3.3% in 2013 to 3.2% this year, before edging up to 3.4% and 3.6% in 2015 and 2016, respectively. • Overall, the fall in oil prices will provide a lift to global growth. However, the gains will be uneven. The world’s major economies, the U.S., euro zone, Japan and China stand to benefit, but several emerging markets will see a steep fall in revenues. • Emerging markets are beset by a number of issues and are likely to have another difficult year in 2015. Geopolitical issues, lower commodity prices, and tighter financial conditions will present challenges. • The subdued global backdrop, in addition to the decline in oil prices, suggests that disinflationary pressures are unlikely to abate. Safe-haven government bond yields are likely to remain relatively low, the U.S. dollar will remain strong and the upside to commodity prices will be limited. Our last global economic forecast in September was titled “major economies marching to different beats.” The story still rings true today. Economic growth is solid in North America, but the malaise continues in the euro zone, Japan has entered a recession, and China is struggling to limit its economic slowdown. We continue to forecast a mild acceleration in global growth over the next two years, but the acceleration will likely not be as pronounced as we previously expected. There is plenty of disappointment to go around when it comes CHART 1. ECONOMIC GROWTH ACROSS REGIONS to Europe, China and Japan. While in each case, policy has tried to move the growth needle, these economies all suffer from debt 6.0 Real GDP, Y/Y % Chg. 5.5 5.3 overhangs and structural impediments that have proved hard nuts 5.1 5.0 to crack. From 3.3% growth in 2013, global real GDP is expected 2014 2015 2016 to slow to 3.2% this year, before edging up to 3.4% in 2015, and 4.0 3.6% in 2016. 3.0 2.7 2.6 Two elements that will be supportive of the acceleration are a 3.0 2.4 2.3 2.3 2.2 fall in oil prices, as well as a robust and resilient U.S. economy. 2.0 1.6 1.4 Lower oil prices create both winners and losers; however, in the 0.9 1.0 0.8 0.9 aggregate, it should be positive for global real GDP. The other 1.0 0.7 0.2 side of the coin is that lower oil prices also contribute to global 0.0 disinflationary pressures. U.S. Canada Japan Euro zone Asia exLatin Japan America* As a result of modest global growth and low inflation, monSource: TD Economics. Forecast as at December 2014. *excludes Mexico. etary policy is expected to remain accommodative, particularly Craig Alexander, SVP & Chief Economist, 416-982-8064 Beata Caranci, VP & Deputy Chief Economist, 416-982-8067 Andrew Labelle, Economist, 416-982-2556 www.td.com/economics @CraigA_TD TD Economics | www.td.com/economics in the euro zone and Japan, and to a lesser extent in China. In contrast, policy is set to tighten somewhat in America, with a first lift-off in the federal funds rate expected in the second half of next year. The end result of these conflicting forces is that the U.S. dollar is likely to appreciate further and government bond yields in advanced economies will remain relatively low. North American outlook shines the brightest In America, real GDP growth bounced back firmly from the setback at the start of the year, averaging over 4.0% in the second and third quarters of 2014 – the fastest two-quarter pace of the recovery to date. The U.S. economic outlook is marked by strengthening domestic fundamentals amidst a difficult global environment. The economy has seen improvement across a range of indicators, but perhaps most importantly in the labor market. Not only has the pace of job growth accelerated to the fastest pace in over 15 years, but job openings have reached new highs. Combined with a rise in labor market turnover, this suggests that the recent uptrend in wage growth is set to continue. Household income will be further supported by the steep decline in energy prices over the past three months. The strength in U.S. domestic demand is balanced against increased drag from the rest of the world. With the dollar rising, U.S. exporters will face a more difficult environment, and at least some of the additional domestic spending will be imported from abroad. This will provide a much needed lift to growth in the rest of the world, but also means that a rising trade deficit will weigh on U.S. real GDP growth. All told, following growth of 2.3% in 2014, we expect the U.S. economy to grow by 3% in 2015, and to moderate to 2.7% CHART 2. MOST AUSTERITY IN EURO ZERO CAME TO AN END IN 2014..... 2.0 Across the pond, data in the U.K. has been positive, with economic growth averaging 3% over the past six quarters. Job growth has been notably buoyant over this period and the labor market has tightened. This suggests that while wage growth has been disappointing so far, a pick-up may be just around the corner. Nonetheless, with a decelerating housing market providing less of a fillip to domestic demand, and given its exposure to a lackluster euro zone, U.K. growth is likely to decelerate to a still healthy 2.4% next year. In the euro zone, economic growth continues to disappoint. After growing by 0.2% annualized in the second quarter, growth rose by a mildly stronger 0.6% in the third quarter. Two core euro zone economies, France and Italy, are of particular concern. In Italy, economic growth has been negative for twelve of the past thirteen quarters. Meanwhile, although France managed to eke out growth of 1.1% in the 108 Euro Real Effective Exchange Rate*, 2010=100 ECB cuts rates, announces TLTRO + other measures 106 Government austerity bites 1.0 Progress in the periphery, but core countries are a source of weakness in Europe CHART 3. ....BUT HIGHER EXCHANGE RATE WEIGHED, SUBSEQUENT FALL WILL BE BENEFICIAL Change in government discretionary fiscal support for economy*, % of potential GDP 1.5 in 2016, as the economy moves closer to full employment. To the north, the strong momentum in the Canadian economy over the past two quarters is slated to continue in the fourth. However, as a leading producer and exporter of energy, the outlook has dimmed owing to the fall in oil prices. At least in the near-term, lower commodity prices are set to weigh on corporate profits and business investment. These factors will be offset by continued healthy export growth to the U.S., a further drop in the Canadian dollar to a low of 84 U.S. cents, and the boost to purchasing power from falling gasoline prices. All said, Canadian real GDP is expected to clock in at a solid 2.4% in 2014 before slowing to 2.3% in 2015, and 2.2% in 2016. 104 102 0.5 Draghi: "will do whatever it takes" 100 0.0 98 -0.5 96 Fiscal support for economy -1.0 94 92 -1.5 90 -2.0 2010 2007 2008 2009 2010 2011 2012 2013 2014 Source: IMF. *as measured by the change in general government structural balance. December 17, 2014 2011 2012 2013 2014 2015 Source: BIS. *Trade-weighted and adjusted for relative changes in consumer prices. 2 TD Economics | www.td.com/economics third quarter, the two largest contributors were inventories and government spending – not a strong foundation for sustainable growth. Fortunately, growth elsewhere in the euro zone has been more buoyant. Some of the countries at the epicenter of the euro crisis that have since undergone painful reforms, such as Spain, Ireland and Greece, are now its strongest performers. However, a sustained period of stronger growth among these countries will likely be dependent on more robust activity in the monetary union’s core economies. Meanwhile, German economic growth has been modest in recent quarters. Weak business sentiment and a subdued external backdrop have weighed materially on business investment. Keeping the economy aloft are record low unemployment and rising wages, which have spurred household spending. All told, the euro zone is expected to eke out modestly stronger growth over the next two years. Growth will be supported by diminished fiscal austerity, which severely weighed on the economy in 2012 and 2013 (see Chart 2), and by a declining euro, which should reverse the drag on net exports (see Chart 3). Slower growth, the new normal in East Asia Further afield, economic activity in Japan has been severely disappointing. After falling by a sharp 6.7% (annualized) in the second quarter following the consumption tax hike, Japanese real GDP defied universal expectations for a rebound, and fell by a further 1.9% in the third quarter. With inflation beginning to decline and with economic growth failing to rebound, the Bank of Japan expanded its qualitative and quantitative easing (QQE) program, leading CHART 4. CHINA IS PLAGUED BY OVERCAPACITY 15.0 Y/Y % Chg. Producer Price Index Consumer Price Index 10.0 5.0 0.0 -5.0 -10.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: China National Bureau of Statistics. December 17, 2014 to a surge in the Nikkei and a further tumbling in the value of the yen. Data in recent months has been slightly more positive and suggests that Japan is likely to pull itself out of recession in the fourth quarter of 2014. In particular, moribund real exports appear to finally be showing signs of life. However, even if growth does turn positive, it will remain modest. Negative real wage growth will remain a weight on consumer spending. As the unemployment rate continues to fall – especially amidst strong corporate profits – the hope is that employees will be able to negotiate higher wages, but at best, this will take several more quarters to occur. At the very least, lower oil and gasoline prices will offer some near-term relief to sliding wages. Meanwhile, economic activity continues to slow in China, with growth coming in at 7.3% in the third quarter, the slowest pace since the financial crisis. Recent stimulus measures, including a $125bn liquidity injection into its banks, interest rate cuts, and an easing in mortgage regulations, have provided a modest lift to the decelerating property sector. However, there are signs that the economic slowdown has extended to other parts of the economy, with motor vehicle sales rising 2.3% YoY in September, the slowest pace in over two years . Overall, economic growth is likely to come in at 7.4% for the year. For next year, we expect China’s economy to decelerate further to 7.0%, as Chinese economic activity continues to slow towards a more sustainable rate of growth. As was the case this year, China is likely to resort to further stimulatory measures in order to support its economy and temper the slowdown. Global economy strikes oil One of the elements that will be supportive of stronger global growth next year is the decline in oil prices. The fall in prices has been driven both by rising oil supply, particularly from the U.S. and selected other countries, and less global incremental demand growth than expected, particularly in emerging markets. A fall in the price of oil is equivalent to a cash transfer from oil producers to oil consumers. Our current forecast is for Brent crude oil to average US$75 in 2015, a decline of US$22 from our US$97 forecast in September. This is equivalent to a cash transfer of more than US$700bn, or roughly 0.9% of global GDP. Because oil consumers are more likely to spend these additional funds than oil producers, and because their expenditures are likely to rise faster 3 TD Economics | www.td.com/economics CHART 6. EMERGING MARKET BONDS AND CURRENCIES FEELING THE BRUNT OF RECENT MARKET TURBULENCE CHART 5. NET OIL EXPOSURE DIFFERS CONSIDERABLY ACROSS LARGE EMERGING MARKETS 50% Index (Exports -Imports) as a % of GDP Index of bond spreads 100 500 EM Currencies* (lhs) 40% 96 30% EM Bond Index** (rhs) 450 92 400 88 350 0% 84 300 -10% 80 250 76 200 20% 10% Thailand South Afr. India Chile Philipp. Indonesia China Poland Turkey Brazil Egypt Argentina Mexico Malaysia Colombia Russia Nigeria Iran UAE Saudi A. -20% Source: UN Comtrade, TD Economics. than those of oil producers are pared back, the impact on global GDP is positive. Model-based estimates vary on the exact impact of oilprice shocks. Most analyses are based on supply-driven spikes in oil prices. For instance, in the last world economic outlook, the IMF examined the impact of a 20% spike in oil prices, and this was estimated to subtract 0.5 percentage points from global growth. Because part of the recent fall in oil prices has come as a result of diminished demand, the decline is unlikely to cause as large an opposite positive response. Although beneficial at a global level, lower oil prices create both winners and losers. Many of the winners encompass larger economies or regions that can certainly use the added boost to household and business pocketbooks – like the euro zone, China and Japan. Although most advanced economies are net importers of oil, this is not the case for countries such as Canada and Norway. And, a number of emerging market economies will lose out. The most prominent of these are OPEC members, as well as non-OPEC oil producers, such as Russia (see Chart 5). In the case of the latter, the drastic decline in the ruble tempers some of the impact of the decline in oil, which is priced in US dollars, but lower oil prices simply compound the already significant difficulties facing the Russian economy. The central bank recently implemented draconian interest rate hikes in an attempt to defend the currency and stem capital outflows. Early evidence suggests this decision was not met with meaningful success. Russia’s troubles are complex, but speak to the potential fiscal and economic strains that emerging markets dependent on oil production will face in December 17, 2014 Source: JP Morgan, Bloomberg. *JPM EM Currency Index,**JPM EMBI Global. the coming year. Likewise, investors can expect ongoing market volatility. Bottom line While the fall in oil prices will support global growth, the outlook is still for a slow grind upward from the lackluster pace of the past few years. Supporting the slim improvement in global economic growth is a robust U.S. economy and lower oil prices. Lower energy costs should also mildly boost activity in Japan and the euro zone. Outside the U.S., global demand is likely to remain relatively sluggish. In China, producer prices have been negative on a year-over-year basis for 32 months in a row, a sign of significant overcapacity relative to demand. Although deleveraging is on the verge of ending in the euro zone, demand for credit remains very subdued. Monetary policy will remain exceedingly accommodative in Europe and Japan as both economies battle disinflation, with a large likelihood of QE in the former. Finally, emerging markets are beset by a host of issues, including geopolitical challenges and declining commodity prices. A strong US dollar and the potential for rate hikes in the U.S. suggests that financial conditions are likely to tighten for many developing economies, with heightened episodes of currency and debt volatility. Emerging market corporations with large foreign-denominated debt are a particular risk. The subdued global backdrop suggests that safe-haven government bond yields are likely to remain relatively low, the U.S. dollar will remain strong, and the upside to commodity prices will be limited. 4 TD Economics | www.td.com/economics ECONOMIC INDICATORS FOR THE G-7 AND EUROPE GLOBAL ECONOMIC OUTLOOK Annual per cent change unless otherwise indicated Real GDP World North America United States Canada Mexico European Union (EU-28) Euro-zone (EU-17) Germany France Italy United Kingdom EU accession members Asia Japan Asian NIC's Hong Kong Korea Singapore Taiwan Russia Australia & New Zealand Developing Asia ASEAN-4 China India** Central/South America Brazil Other Developing Other Advanced 2013 Share* (%) 2013 99.9 3.3 20.0 2.1 16.5 2.2 1.5 2.0 2.0 1.1 17.2 0.2 12.3 -0.4 3.4 0.1 2.5 0.3 2.0 -1.9 2.3 1.7 2.7 1.4 41.3 5.2 4.6 1.5 3.4 2.8 0.4 2.9 1.7 3.0 0.4 3.9 1.0 2.1 3.4 1.3 1.2 2.4 28.7 6.6 4.6 5.2 15.8 7.7 6.6 4.7 6.7 3.2 3.0 2.5 13.7 3.5 1.0 1.9 2014 3.2 2.3 2.3 2.4 2.1 1.4 0.8 1.5 0.4 -0.4 3.0 2.3 4.9 0.2 3.3 2.0 3.5 3.1 3.5 0.4 2.8 6.4 4.6 7.4 5.4 0.7 0.1 2.9 1.8 Forecast 2015 2016 3.4 3.6 3.0 2.8 3.0 2.7 2.3 2.2 3.5 3.9 1.4 1.6 0.9 1.4 1.1 1.4 0.7 1.2 0.2 0.9 2.4 2.0 2.5 2.7 4.7 4.9 0.9 1.0 3.5 3.6 2.8 3.3 3.7 3.6 3.5 3.5 3.6 3.8 -3.5 -1.0 2.4 3.4 6.4 6.4 5.1 5.1 7.0 6.7 6.1 6.5 1.6 2.6 0.8 2.1 3.5 4.1 2.0 2.3 *Share of world GDP on a purchasing-power-parity basis. Forecast as at December 2014. **Forecast for India refers to FY. Source: IMF, TD Economics. 2013 2014 Forecast 2015 2016 Real GDP (Annual per cent change) G-7 (32.7%)* U.S. Japan EZ Germany France Italy United Kingdom Canada 1.5 1.7 2.1 2.0 2.2 1.5 -0.5 0.1 0.4 -1.9 1.7 2.0 2.3 0.2 0.8 1.5 0.4 -0.4 3.0 2.4 3.0 0.9 0.9 1.1 0.7 0.2 2.4 2.3 2.7 1.0 1.4 1.4 1.2 0.9 2.0 2.2 Consumer Price Index (Annual per cent change) G-7 U.S. Japan EZ Germany France Italy United Kingdom Canada 1.3 1.6 1.1 1.8 1.5 0.4 1.3 1.6 1.0 1.3 2.6 0.9 1.6 2.8 0.5 0.8 0.6 0.2 1.5 2.0 1.1 1.4 0.7 0.9 0.8 0.4 1.2 1.5 2.2 1.1 1.2 1.7 1.3 1.1 1.9 2.1 Unemployment Rate (Per cent annual averages) U.S. Japan EZ Germany France Italy United Kingdom Canada 7.4 4.0 12.0 5.2 10.3 12.2 7.5 7.1 6.2 3.6 11.6 5.0 10.3 12.8 6.3 6.9 5.5 3.5 11.3 4.8 10.4 12.8 6.0 6.7 5.2 3.5 11.0 4.7 10.0 12.4 6.0 6.7 *Share of 2013 world gross domestic product (GDP) Forecast as at December 2014 Source: National statistics agencies, TD Economics This report is provided by TD Economics. 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