The Prospects Service LEADING ECONOMIC ANALYSIS, FORECASTS AND DATA Global Prospects, September 2017 Toplines The combination of rising consumer confidence, low borrowing costs and declining unemployment is likely to support Eurozone consumer spending in the coming months. Donald Trump has outlined major tax cut plans. The plan includes reducing the corporate tax rate from 35% to 20% while also changing the number of income tax brackets. Canada s GDP rose at its strongest rate since 2011 in the second quarter, helped by solid household spending. Moreover, the Bank of Canada raised its benchmark rate for only the second time in seven years. Latest economic indicators for Japan suggest that Asia s second-largest economy will continue growing in the coming months despite a marked downward revision of second quarter GDP growth. Although Angela Merkel s CDU remains the strongest party in German Parliament, they recorded their worst result since 1949. Meanwhile, far-right AfD enters Parliament as the third-strongest party. Forecast summary Cebr expects the world economy to grow by 3.0% in 2017 with a slight acceleration to 3.1% in 2018. We revised up slightly our forecast for the Eurozone economy given the continued positive data flow. Cebr predicts Eurozone GDP to expand by 2.0% in 2017, up from 1.7% in 2016. German GDP is forecast to increase by 2.0%, with the French and Italian economies growing at annual rates of 1.7% and 1.3% respectively. India s economy is now predicted to grow at a marginally slower pace than in 2016. Particularly weak second quarter GDP results are the main reason for the slight downward revision of GDP growth to 7.0% in 2017. This is down from our 7.1% forecast in August. The US Federal Reserve Bank announced that it will start cutting its $4.5 trillion balance sheet in October, initially by just $10 billion per month. A further rate hike towards the end of the year remains a strong possibility. China s economy performed better than expected during the first half of the year, but we expect a slight weakening of growth in the second half. Nonetheless, Cebr expects Chinese GDP to accelerate from 6.7% in 2016 to 6.8% this year.
In focus: Results of the German federal election: The outcome of the German federal election came as a surprise, given that both parties of the current coalition government the CDU/CSU and SPD recorded their worst results in over six decades. The CDU/CSU secured 32.9% of the votes, an 8.6 percentage point decline from 2013. The CDU/CSU lost almost one million supporters to the AfD, which is likely to be at least in part a reflection of voters unhappiness with Angela Merkel s immigration policies. The SPD lost 5.2 percentage points and had a share of just 20.5% of all votes. Meanwhile, far-right party AfD becomes the third largest party as it enters Parliament only four years after it was founded, securing 12.6% of all votes. The FDP returns to Parliament after failing to secure 5% of votes during the 2013 election. There were some notable demographic differences in the election results with the far-right AfD particularly popular in some of Germany s Eastern states. In Saxony, the AfD was the strongest party. Data from Tagesschau 1 also highlight that the AfD was particularly popular amongst unemployed people. The Chancellor now has the difficult task to build a coalition government. After the SPD ruled out a continuation of the Grand coalition, it looks likely that the CDU/CSU will begin talks with the FDP and the Green Party. However, discussions will be difficult given the large differences in some areas. One area of discrepancy concerns the number of migrants Germany is able to accommodate. While the CSU has previously argued for an upper-limit, the Green Party strongly dismisses an upper-limit. Share of voters 32.9% 20.5% Win/loss since 2013 election 0.6% 0.5% 6.0% 7.9% 9.2% 8.9% 10.7% 12.6% -8.6% -5.2% Sources : Tagesschau (http://wahl.tagesschau.de/wahlen/2017-09-24-bt-de/index.shtml) 1 http://wahl.tagesschau.de/wahlen/2017-09-24-bt-de/umfrage-job.shtml
Global roundup Europe Eurostat revised its annual Q2 GDP forecast for the Eurozone from 2.2% to 2.3%, confirming that the currency union s economy grew at the fastest pace in over six years. With the economy gathering momentum, the European Central Bank (ECB) should feel confident about starting to taper its asset purchase programme at the beginning of next year. Cebr forecasts the Eurozone economy to grow by 2.0% in 2017. This is up from 1.9% in the July forecast, as we now believe that Germany and Italy will grow at stronger rates than previously estimated. Industrial production improved only marginal on the latest data (for July), but latest business survey data showed that the Eurozone economy regained momentum in September. PMI data from IHS Markit suggested that the manufacturing sector performed particularly well with the respective index the highest in over six years while figures from the European Commission showed that production expectations increased markedly, boding well for the coming months. The outlook for consumers remains bright, with Eurozone consumer confidence rising to its highest level since 2001, according to the European Commission. Moreover, declining unemployment and low borrowing costs are supporting consumer spending. Although Angela Merkel secured victory in the federal election in Germany, her party the CDU recorded its worst result since 1949. The far-right AfD (Alternative für Deutschland) was the third-strongest party, entering the Bundestag for the first time. With a grand coalition between the CDU and SPD ruled out, the most likely scenario is the so-called Jamaica coalition between the CDU, the Green Party and the FDP. 4% Eurozone GDP growth 3% 2% 1% 0% -1% -2% -3% -4% -5% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source : IMF, Cebr analysis
North America At its latest monetary policy meeting, the Federal Reserve Bank announced that it will start cutting its $4.5 trillion balance sheet in October, initially by just $10 billion per month. Fed chair Janet Yellen stressed that cutting the balance sheet will be a gradual and predictable process. The Fed also said that the US economy will continue to expand over the next few years and that the job market will strengthen further. The US unemployment rate rose marginally from its 16-year low to 4.4% in August, while non-farm payrolls growth slowed for the second month running. The average monthly gain in employment in 2017 so far stands at 175,000, down from 194,000 in 2016 and the lowest since 2011. However, with the US labour market moving closer to full employment, it is not surprising that non-farm payroll growth is slowing. It will be particularly interesting to see whether the next few jobs reports will be coloured by the impact of Hurricane Harvey. The latest economic projections of the Fed see the unemployment rate dropping to 4.1% next year. The US commerce secretary Wilbur Ross said that US GDP could be boosted by one percentage point if the government can get its tax reform right. The framework for the tax includes bringing the corporation tax down from 35% to 20% as well as cutting the top individual tax rate from 39.6% to 35%. However, there remains uncertainty about the timing of those reforms with businesses generally expecting the legislation will implemented by the end of next year. 2 Canada s economic growth accelerated in the second quarter as household spending rose at the strongest rate since before the financial crisis. Annualised growth stood at 4.5%, easily beating expectations of a 3.7% expansion. With GDP and other economic indicators stronger than expected, the Bank of Canada raised its target for the overnight rate to 1%. It was only the second interest rate rise in over seven years. 4.0% North America GDP growth 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Economies covered: Canada, Mexico, United States Source: IMF, Cebr analysis 2 Based on survey results from the National Association for Business Economics (https://nabe.com/nabe/surveys/outlook_surveys/september_2017_outlook_survey_summary.aspx)
Asia-Pacific The Japanese economy grew at an annualised rate of 2.5% in the second quarter, according to latest government estimates. This is down markedly from the initial estimate of 4.0% growth, but still the strongest rate of expansion in over two years. A large part of the downward revision came from weaker than previously thought capital expenditure which is now believed to have increased by just 0.5%, down from the previous reading of 2.4%. Latest economic indicators such as industrial production, consumer confidence and trade data suggest that the Japanese economy continued growing in Q3. However, it is likely that the rate of expansion has slowed since Q2. Over 2017 as a whole, Cebr predicts economic growth of 1.3%. Japanese Prime Minister Shinzo Abe called a snap election, which is likely to take place on October 22 nd. Mr Abe s support had fallen during the summer months but recovered most recently. Political commentators believe that the Prime Minister is trying to exploit the opposition s current weakness by calling a snap election. We revised down our Indian GDP forecast slightly. For 2017 we expect the Indian economy to expand 7.0%, down marginally from our August forecast of 7.1% growth. Latest official data showed that Indian GDP rose just 5.7% in the three months to June, the slowest pace in three years. Disruption caused by the goods and services (GST) tax and effects of the demonetisation are likely to have acted as drags on the country s economic performance. Manufacturing growth slowed to 1.2% in the June quarter, from 5.3% in the previous quarter while mining contracted. China s economy enjoyed better than expected growth in the first half of 2017, with GDP rising at an annual rate of 6.9% in both Q1 and Q2. However, there are signs that economic growth may soften slightly in the second half of the year. Industrial production growth slowed from 6.4% in July to 6.0% in August, representing the joint-weakest increase since March 2016, with retail sales also surprising on the downside. Given China s strong performance in the first half of the year, Cebr still expects Asia s largest economy to expand 6.8% in 2017, which would be the first acceleration in growth since 2010. Asia-Pacific 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Economies covered: Australia, China, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Thailand Source: IMF, Cebr analysis
Forecast tables GDP growth major economies Cebr-Growth 2016 2017 2018 2019 2020 2021 forecast-% Australia 2.4% 2.6% 2.6% 2.8% 2.8% 2.8% Brazil -3.6% 0.6% 1.5% 1.8% 2.4% 2.4% Canada 1.5% 2.3% 1.7% 1.8% 1.8% 1.8% China 6.7% 6.8% 6.2% 5.5% 5.5% 5.2% France 1.2% 1.7% 1.6% 1.6% 1.5% 1.5% Germany 1.9% 2.0% 1.8% 1.7% 1.7% 1.7% India 7.1% 7.0% 7.5% 7.5% 7.5% 7.0% Indonesia 5.0% 5.1% 5.3% 5.4% 5.5% 5.5% Italy 0.9% 1.3% 1.1% 1.1% 1.1% 1.0% Japan 1.0% 1.3% 0.9% 0.8% 0.7% 0.7% Mexico 2.3% 2.0% 2.2% 2.4% 2.3% 2.3% Russia -0.2% 1.2% 1.8% 1.9% 1.9% 1.7% South Korea 2.8% 2.5% 2.7% 3.0% 3.0% 3.1% Spain 3.2% 3.0% 2.5% 2.2% 2.2% 2.0% Turkey 2.7% 3.6% 3.4% 3.3% 3.3% 2.5% United Kingdom 1.8% 1.6% 1.4% 1.6% 1.7% 1.7% United States 1.5% 2.1% 2.5% 2.1% 2.1% 2.1% World 2.5% 3.0% 3.1% 3.0% 3.0% 3.1% Commodity 131 141 144 135 128 133 prices* Oil prices** 43 53 56 55 55 56 *IMF non-fuel commodity index, 2005 = 100 **Average of Brent, WTI & Dubai Fateh, in USD Source: IMF, Cebr analysis More forecasts can be found by accessing the Cebr databank: www.cebr.com/databank
For more information, please contact Oliver Kolodseike Senior Economist okolodseike@cebr.com 020 7324 2878