United States

Real GDP grew at a robust 3.4% annualized rate in Q3 2018, following even stronger 4.2% annualized growth in Q2. A strong gain in consumer spending was partially offset by the weakest increase in business investment in nearly two years and a third straight quarterly decline in residential investment. In a reversal from Q2, net trade exerted a 2.0 ppt drag in Q3. Real GDP is now trending at a very solid 3.0% y/y – the fastest pace since early 2015.     

Eurozone

Following a 0.2% q/q rise in GDP in Q2, it looks as though the eurozone economy remained very weak in Q3. High‐frequency indicators remained dismal, with the composite PMI falling to its lowest in six years in September. The EU's Economic Sentiment Indicator also fell in September and was below the Q2 average. And available hard data offers no relief, with both industrial production and retail sales contracting in July.     

Japan

The pandemic hit the economy extremely hard, causing a 7.9% q/q contraction in Q2 2020, the largest quarterly drop on record. Spending and activity have recovered after the state of emergency was lifted in late May and we expect a robust rebound in growth in Q3. That said, forward-looking indicators paint a mixed picture, so we expect the subsequent recovery to be uneven and protracted. On the political side, Yoshihide Suga succeeded Shinzo Abe as Prime Minister in mid- September and will likely continue to follow the policy path his predecessor charted. We forecast GDP to shrink 5.7% in 2020 before growing 2.5% in 2021 (compared to −6.0% and +2.8% previously).     

Eurozone

All the signs are that Q2 will see Eurozone GDP growth exceed Q1's well above‐trend rise of 0.6%. In addition to the business surveys continuing to rise, quarterly industrial production and retail sales growth also probably accelerated in Q2, closing the previous gap between the surveys and hard data. This points to a robust rise in GDP of 0.7% to 0.8% in Q2     

United States

Real GDP growth cooled to 2.0% (annualised) in Q2, following a deceptively strong 3.1% advance in Q1, but the softer headline print masked diverging trends across subsectors. The 4.7% consumer spending splurge was the largest in almost five years. Meanwhile, residential and business investment contracted – the latter for the first time since 2016. But trade and inventories also dragged on growth by 0.7ppt and 0.9ppt, respectively.     

World Economic Prospects Monthly

Overview: World GDP now seen falling 2.8% in 2020

• ▀ With much of the global economy now in some form of lockdown due to the coronavirus pandemic, we expect world GDP to contract by about 7% in H1 2020. Activity is expected to rebound sharply in H2, but even so the severity of the shock is likely to lead to a permanent GDP loss for the global economy.
• ▀ While Chinese activity picked up in late-Q1 as lockdown restrictions were unwound, we expect Q1 GDP to have fallen 12% q/q before rebounding sharply in Q2. But this Q2 boost looks set to be swamped by the collapse in activity caused by the rest of the world going into lockdown.
• ▀ Although shutdown restrictions elsewhere are less severe than those imposed in China, business survey and labour market data still point to sharp falls in activity in most countries in Q2. Quarterly GDP declines of 8% or more in the US and eurozone seem likely. Overall, world GDP could fall by about 7% in H1, roughly double the size of the contraction during start of the global financial crisis in 2009.
• ▀ In those economies subject to some form of lockdown, we expect restrictions to begin to be lifted during Q2. As a result, growth should resume in Q3 as sectors that have been forced to shut down see some pick-up. But despite this rebound, world GDP is now seen shrinking 2.8% in 2020 overall — in 2009, the global GDP fall was 1.1%.
• ▀ The H2 pick-up, followed by a return to more normal conditions next year, will result in world GDP growth rising to almost 6% in 2021, helped also by the recent collapse in oil prices to about $30pb. But the scale of the disruption means that we expect a permanent loss of output from the shock. We expect global GDP in the medium term to be some 1.5% below the level we had anticipated before the coronavirus outbreak.
• ▀ The risks around this forecast are large and broadly balanced. But were stringent lockdowns or widespread disruption, perhaps due to renewed outbreaks of the virus, to extend into Q3, global GDP could fall by as much as 8% this year.

     

Europe

The Eurozone recovery continued through the summer, with PMI readings indicating GDP growth of around 0.3% in Q3 2014 ‐ a fourth straight quarter of modest underlying growth (temporary weakness in German construction dragged down Q2). Alongside this, the labour market seems to have turned – employment was up 350,000 in Q2, the largest rise since 2008. And consumers seem to be responding to normalizing conditions, with retail sales picking up through 2014 and rising by 1.2% in August alone…     

Japan

Growth continues to struggle against a background of weak exports and a deceleration in capex spending, given sluggish external demand and the ongoing slowdown in ICT. While GDP grew 0.6% q/q in Q1, we caution against seeing the strong print as cause for optimism, as falling imports were the key factor behind the unexpectedly robust outturn. With manufacturing still struggling and exports slowing further, we maintain our relatively cautious forecast of 0.5% GDP growth in 2019. In 2020, we now forecast GDP growth of just 0.2% due to the impact of the scheduled consumption tax hike in Q4.     

Europe

On balance, the available data for Q3 appear to point to a broadly similar pace of growth as in the preceding quarter. Although the September composite PMI fell to its lowest level since the announcement of the ECB's QE policy, the index still points to quarterly GDP growth of about 0.3%. And other survey indicators have risen – the EC's Economic Indicator is at its highest since January.     

Japan

GDP grew by a solid 1.7% in 2017, supported by strongly expanding global trade. For this year, we expect growth to ease to 1.2%, dampened by slowing external momentum and weak domestic demand in Q1. Although GDP dropped 0.2% q/q in Q1, we expect this setback to be temporary and look for reasonable, broad‐based growth during the rest of 2018. Monthly indicators of consumption and trade look positive and suggest a recovery in Q2. The outlook for investment also remains broadly positive, although sentiment has moderated somewhat since the start of the year. Protectionism, particularly the threat of US tariffs on Japanese cars, remains a key downside risk for our forecast.     

Forecast Overview

The preliminary estimate for Q1 GDP growth is likely to be relatively soft, as a result of two temporary factors. First, a week of snowy weather at the end of February/start of March appears to have caused significant disruption to activity. And second, the collapse of Carillion – the UK's second largest construction firm – caused construction output to plunge in January. As a result, quarterly GDP growth looks likely to come in at around 0.3%, though it could conceivably be weaker still.     

Eurozone

The recent flow of economic data supports the view that Q1 will have seen stronger quarterly GDP growth than Q4's 0.4% gain. Indeed, given the composite PMI's healthy end to Q1, the strength seen in Q1 may continue next quarter. As a result, we have upgraded our forecast for GDP growth in Q2 and now pencil in a second consecutive quarterly gain of 0.5%.     

Forecast Overview

The final estimate for Q3 2017 left quarterly GDP growth unrevised at 0.4%, a touch up on the (also unrevised) 0.3% in both Q1 and Q2. But with the ONS having revised up the pace of growth in H2 2016, arithmetically this has been enough to boost our forecast for calendar year 2017 GDP growth to 1.8%, from 1.5% three months ago.     

Forecast Overview

The national accounts reported quarterly GDP growth of 0.4% in Q3, up from the preliminary estimate of 0.3%. This continued the run of volatile quarterly readings, with output having contracted 0.2% in Q2. And a series of soft monthly GDP readings, along with some very poor business survey results, suggest that GDP is likely to have flatlined in Q4. This would result in GDP growth of 1.3% for 2019 as a whole, in line with the 2018 outturn which was the weakest since the financial crisis.     

World Economic Prospects Monthly

Overview: Coronavirus to cut global growth to new lows

• ▀ The rapid spread of coronavirus will weaken China's GDP growth sharply in the short term, causing disruption for the rest of the world. We now expect global GDP growth to slow to just 1.9% y/y in Q1 this year and have lowered our forecast for 2020 as a whole from 2.5% to 2.3%, down from 2.6% in 2019.
• ▀ Prior to the coronavirus outbreak, there had been signs that the worst was over for both world trade and the manufacturing sector. However, this tentative optimism has been dashed by the current disruption.
• ▀ While the near-term impact of the virus is uncertain, the disruption to China will clearly be significant in Q1 – we expect Chinese GDP growth to plunge to just 3.8% y/y. Even though growth there will rebound in Q2 and Q3, it will take time for the loss in activity to be fully recovered and we now expect GDP growth of just 5.4% for 2020 as a whole, a downward revision of 0.6pp from last month.
• ▀ Weaker Chinese imports and tourism and disruption to global supply chains will take a toll on the rest of the world, particularly in the Asia-Pacific region. And the shock will exacerbate the ongoing slowdown in the US and may result in the eurozone barely expanding for a second quarter running in Q1.
• ▀ Weaker oil demand in the short term has prompted us to lower our Brent oil price forecast. We have cut our projection for growth in crude demand in 2020 by 0.2m b/d to 0.9 mb/d and now forecast Brent crude will average $62.4pb in 2020, down from about $65pb in our January forecast.
• ▀ Quarterly global growth is likely to strengthen a little in H2 this year as the disruption fades and firms make up for the lost output earlier in the year and the effect of China's policy response starts to feed through. But for 2020 overall, global growth is now likely to be just 2.3%, 0.2pp weaker than previously assumed as a result of the epidemic.

     

Europe

After two quarters of 0.3% GDP growth, the signs are that the Eurozone recovery moved up a gear in Q4 last year, with the latest industrial and consumer data pointing to buoyant GDP growth in the period. Meanwhile, in December, the composite PMI climbed to a five and a half year high, a sign that the recovery strengthened as the quarter progressed. For now, we have pencilled in GDP growth of 0.5%, which would match the gain recorded in Q1 2016.     

United States

Real GDP rose by 2.2% on an annualized basis in Q4 2014, as final sales advanced 2.4% while inventories imposed a 0.1 percentage point drag on growth. Consumer spending grew by 4.4% – the strongest since 2006 – contributing 3.0 percentage points to GDP growth. Business investment growth was revised slightly lower to a still solid 4.7% on downward revisions to equipment and intellectual property spending. Lastly, net foreign trade and government spending were drags on growth, subtracting 1.0 and 0.4 percentage points respectively. The economy grew by 2.4% in 2014 and we expect GDP growth will accelerate to 2.7% in 2015.…     

Japan

Data from Q3 have been quite mixed, but on balance suggest that the fallout from April's sales tax hike has been worse than initially expected. The composite PMI reached a six‐month high of 52.8 in September, but the Cabinet Office's index of coincident indicators has continued to fall through Q3. On balance, we estimate that GDP was virtually flat in Q3. We thus now expect growth for 2014 as a whole to come in at 0.7%, down from 1.1% three months ago…     

United States

Despite a slight downgrade to GDP growth in Q1 and much slower growth expected in Q2 (reflecting the sequester and higher taxes) the recovery appears set to accelerate in the second half of the year. There are encouraging signs that private demand is picking up, with employment growth, consumer confidence and the housing market continuing to strengthen. This will push GDP growth to over 3% by the end of the year and to an average of 2.9% in 2014. The key factors strengthening growth in the face of tigher fiscal policy are: Improving household finances – Consumer spending is being bolstered by wealth effects from strong equity and house prices. Real wages are showing healthy growth again and, combined with rising employment, are helping to mitigate the impact of higher taxes on household disposable income. Moreover, with debt ratios at their lowest levels since 2004, it looks like deleveraging by households is ending. A stronger housing market – housing starts were up 6.8% in May to a level nearly 30% up on a year earlier. We expect residential investment to increase over 13% in 2013 and a further 9% in 2014 despite recent increases in mortgage rates. Increased home sales will also boost spending on furniture and appliances, which are often bought when people move home. Competitive manufacturing sector – US unit labor costs are the most competitive in over 30 years, and many firms are also benefiting from relatively low natural gas prices. This is supporting exports in the face of subdued world demand, although the trade deficit has deteriorated as stronger domestic demand has lifted imports. Improved competitiveness is also encouraging higher investment, which is back to pre‐recession levels…     

Japan

After the 0.3% contraction in GDP in Q2 the economy appears to have at least stabilised in Q3. Domestic demand growth is being offset by declining exports. A softer outlook for H2 means we have downgraded our 2015 GDP forecast to 0.6% (from 1% in July). For 2016 we now expect growth of 1.5% instead of 1.8%.