Global Assumptions. Global Outlook

Transcription

1 cc hh aa pp t et e r r 7 1 BMI Political Global Outlook Assumptions Global Assumptions Global Outlook In line with our view that the global economy is stabilising, there have been very few changes to our key global assumptions since last month s update. Our global growth forecast for 2009 has been tweaked slightly lower, to -2.6% from -2.5%. Our core view remains that the worst of the global decline came in Q408-Q109, and while economic data may not be particularly inspiring during the rest of 2009, they should show signs of tentative improvement. But importantly, our 2010 forecast remains at 1.7%, illustrating our view that the ongoing recovery will be tepid as the global economy undergoes a period of seismic restructuring. The key risk to outlook that we have been playing up of a double-dip recession, which involves a modest recovery in economic activity, followed by a second downturn appears more likely than ever, with incipient signs of inflation that may require monetary tightening further down the road. Commodity prices, for example, have headed higher in recent weeks (we have upgraded our 2009 Brent crude oil price forecast TABLE: GLOBAL ASSUMPTIONS 2008e 2009f 2010f 2011f 2012f 2013f Real GDP Growth (%) USA Eurozone Japan China World Consumer Inflation (avg) USA Eurozone Japan China World Interest Rates (Eop) Fed Funds Rate ECB Refinancing Rate Japan Overnight Call Rate Exchange Rates (ave) US$/EUR JPY/US$ CNY/US$ Oil Prices (ave) Brent Crude (US$/bbl) Real GDP Growth and Inflation For World Figures Weighted by Nominal US$ GDP. Source: BMI 63

2 turkey Q accordingly, to US$54.00/bbl from US$49.00/bbl), and the US dollar and bond markets are beginning to price in the risks of future inflation. In summary, we may be through the worst of the downturn, but that does not mean that things look rosy from here on out. Developed States Our real GDP growth forecast for developed markets in 2009 holds steady -3.9%, a figure that would mark the most severe post-war downturn for the industrialised world. Notably, our 2010 forecast is not particularly optimistic either, with a mere 0.7% expansion forecast. The US forecast remains at 3.3%, while we maintain that the eurozone and Japan will contract by 4.2% and 6.1% respectively in Several euro bloc members are being hit extremely hard in this economic cycle, including the worst-hit, Ireland, at -9.4%. Germany and Italy are forecast to post falls in real GDP this year of 5.8% and 4.5%, respectively. Growth is not expected to pick up strongly in 2010, with the Japanese economy picking up by just 0.7%, and the euro bloc posting relatively flat growth of 0.1%. The US is the outlier in this respect, as we are forecasting expansion of 1.2%, the second-best rate of growth among developed states in 2010 (behind Canada). However, we caution that this reflects mainly the US s status as the first to enter recession and the first to leave it, rather than any form of return to trend growth. Emerging Markets Emerging markets are forecast to post a mild contraction, of 0.2%, on aggregate in The 3.3% growth we are pencilling in for 2010 would be the third-worst annual performance of the decade, compared with 3.0% expansion in 2001, when the US was TABLE: GLOBAL & REGIONAL REAL GDP GROWTH f 2010f 2011f World Developed States Emerging Asia Latin America Emerging Europe Sub Saharan Africa Middle East & North Africa developed market exchange rates Eurozone US$/EUR, ave Japan JPY/US$, ave Switzerland CHF/US$, ave United Kingdom US$/GBP, ave emerging market exchange rates China CNY/US$, ave South Korea KRW/US$, ave India INR/US$, ave Brazil BRL/US$, ave Mexico MXN/US$, ave Russia RUB/US$, ave Turkey TRY/US$, ave South Africa ZAR/US$, ave Source: BMI 64

3 global assumptions last in recession. Thanks nearly entirely to China s 5.6% real GDP growth forecast, Emerging Asia will grow by 3.0% in 2009, but that will be due mainly to a 5.6% growth performance from China, rather than to any relative regional economic strength. Several states are going to be very hard-hit by the decline in global trade, including Singapore (-7.2%) and Taiwan (-4.5%). Latin America will contract by 2.6% in 2009, a downward revision from our previous -2.2% forecast. Mexican real GDP is set to shrink by 7.1%, amid a two-year recession that will see negative growth again in As a whole, Latin America is set to underperform every other region in aggregate in 2010, with expansion of just 0.3% (previous forecast: 0.6%), with Venezuela performing particularly badly (contractions of 5.6% and 6.4% in 2009 and 2010, respectively). Emerging Europe, the worst regional performer, will see real GDP shrink by 5.6% in 2009, highlighted by major contractions in Russia (-7.1%) and Turkey (-5.7%). The recovery in 2010 to 1.4% will be weak. Sub-Saharan Africa will post zero growth in 2009, and expand by just 2.8% in Among other states, South Africa will experience an economic contraction in The Middle East & North Africa region is expected to outperform with a 1.3% regional growth rate in 2009 (revised down slightly from 1.7% previously), thanks mainly to steady growth performances in Egypt (3.7%), Iran (2.4%) and Qatar (6.5%), and despite contractions in the UAE (-2.9%) and Kuwait (-1.0%). Commodities Recent commodity market gains have come on the back of a confluence of factors, which we believe will remain in play over coming months. Commodity-specific fundamentals remain supportive as historically tight stocks-to-use ratios are being coupled by recurring TABLE: COMMODITIES f 2010f Gold, US$/oz, ave Copper, Three-Month, US$/tonne, ave Aluminium, Three-Month, US$/tonne, ave OPEC basket, /bbl,ave Brent Crude Oil, /bbl,ave Cocoa GBP/tonne, ave Coffee (Arabica), USc/lb, ave Sugar #11, USc/lb, ave Milk, US$/cwt, ave Wheat, USc/bushel, ave Corn, USc/bushel, ave Soybean USc/bushel, ave Rice, US$/cwt, ave Source: BMI 65

4 turkey Q supply-side issues. Moreover, risk appetite has returned to markets, buoying equities and commodity markets alike in recent weeks. Furthermore, a weaker US dollar has also provided a catalyst for commodities given the negative correlation between both assets. We expect dollar weakness to persist over the coming months, which would be price supportive. While global demand is still on the back foot, a combination of stockpiling and an incipient pickup in demand from China has benefited commodity markets. Indeed, China s resource binge has seen commodity imports rise dramatically in recent months. Imports of refined copper grew by 140% in April, with imports for the first four months almost doubling that registered in the same period in Similarly, imports of crude oil has been rising steadily, and there are no signs that Chinese demand for soybean is abating. As such, the demand side of the story may be tentatively improving somewhat, and this combined with the aforementioned dynamics would be very bullish for commodities. We continue to highlight that over the medium term, commodities susceptible to supply-side issues such as oil, soy, sugar and cocoa will likely outperform. Of course, despite our bullish tone, we acknowledge that a global economic recovery is a necessary condition for commodity prices to continue rising over the medium term. 66

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