EIU global forecast april 2012

Master Template 1Global forecasting service Economic forecast summary - April 2012 www.gfs.eiu.com... Growth in 2012 will be constrained by sluggish OECD demand.. Oil consumption growth

Master Template 1

Global forecasting service

Economic forecast summary - April 2012

www.gfs.eiu.com

The economy has created an average of 240,000 jobs a month in the past three months, pushing down the unemployment rate to 8.2%

The tone of recent data has been robust But income growth remains sluggish and high oil prices are cutting disposable

income We have edged up our 2012 GDP growth forecast to 1.9%

Housing market data has improved

recently but a large overhang of unsold houses remains a headwind for the

property market.

A drastic tightening of fiscal policy is in prospect in 2013 for the incoming

administration

The injection of liquidity by the ECB into euro zone banking system has eased funding pressures on banks and

sovereigns, notably Italy and Spain

In Greece a restructuring of debt owed

to private creditors was completed in March, entailing write-offs of €100bn The debt restructuring and additional austerity measures have paved the way for a second, €130bn EU/IMF loan deal This has averted the risk that Greece might default on a €14.5bn bond

repayment in March

We expect the euro zone economy to contract by 0.7% in 2012

Growth in 2011 was undermined by the negative impact of the March earthquake and tsunami as well as a strong yen that constrained export potential

The economy lost momentum in the

fourth quarter, contracting by 0.6%, but one positive development was strong growth in investment by Japanese

companies

The economy is expected to grow by 1.5% in 2012 supported by a stronger export performance and reconstruction activity From 2013 we expect the

economy to grow at a rate of between 1-2%

Growth in 2012 will be constrained by sluggish OECD demand EMs will still comfortably outperform their peers in the developed world in 2012-16

EM currencies and asset markets

have rallied strongly since the start of the year as risk appetite has

recovered Brazil has taken measures

to stem upward pressure on the Real

In China we forecast growth of 8.2%, higher than the government’s new, lowered medium-term target of 7.5% Rebalancing the economy away from investment towards private

consumption will make for less

commodity-intensive growth

Oil consumption growth will be

constrained in 2012 by the weak

OECD economic outlook It will

average nearly 2% year on year in 2013-16, led by rising demand in the developing world

Geopolitical risks are weighing on the supply picture particularly the

tensions between the West and Iran Our forecast assumes a military

outcome is avoided

Prices will average around US$110/b

in 2012 as supply concerns offset the negative impact of weaker demand

Consumption growth is expected to slow in 2012, constrained by weak EU and growth and somewhat slower

growth in the developing world

However, rising emerging market

incomes and urbanisation will underpin medium-term demand growth

Years of underinvestment, particularly

in agriculture, will support prices

Nominal prices will remain historically high in 2012-16, but prices will ease back in real terms

Sluggish demand will be deflationary but high oil prices will push up

headline inflation

The Fed has signalled its intention to keep interest rates very low until late

2014 A further round of quantitative easing appears unlikely if the current rate of job creation is sustained

The ECB cut rates twice in late 2011, reversing the two rate rises earlier in the year In 2012 we expect the ECB

to keep its policy rate at 1%

We expect most emerging market central banks to keep interest rates broadly stable in 2012

As funding stresses on euro zone

banks and sovereigns have eased, the euro has rebounded Having bounced from a recent low of US$1.26, the

single currency appears to be

establishing a new trading range above US$1.30:€

The yen has weakened as risk appetite has recovered and the Bank of Japan has become more aggressive in easing monetary policy

EM currencies have rebounded Over the medium term they will be supported

by positive growth and interest rate

differentials with OECD economies

+ Unprecedented policy response after Greek exit prevents contagion

- An attack on Iran results in an oil price shock

- The global economy falls into recession

- The euro zone breaks up

+ Stronger than anticipated US growth boosts the global economy

15 16

15 15 12

- Tensions over currency manipulation lead to protectionism

- The Chinese economy crashes

- US dollar crashes

- Economic upheaval leads to widespread social and political unrest

- Resumption of monetary stimulus leads to new asset bubbles

10 12

10 9 8

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