World economy

Compared to three months ago, we have revised up our global GDP growth forecast for this year from −4.5% to −4.2% on the back of evidence showing a faster than anticipated recovery around the middle of the year. That said it has become clear than the expansion has already entered a second, slower growth phase. With many economies, particularly in Europe, needing to reimpose some restrictions on activity in the light of rising Covid-19 cases, we have lowered our forecast for global GDP growth next year from 5.8% to 5.2%.     

World Economic Prospects Monthly

Overview: Growth resilient to protectionist concerns

• ? Despite the mounting threat of more protectionist trade measures, we expect the impact on global growth and trade to be mild. Given this, and the still fairly solid underlying economic picture, we have left our global GDP growth forecasts for 2018 and 2019 unchanged at 3.2% and 3.0% respectively.
• ? Although economic data in Q1 painted a pretty solid picture, there are signs that the global expansion may lose momentum in Q2. Most notably, the global PMI fell sharply in March, more than offsetting the gains of the previous three quarters or so. Some of the decline may reflect an over‐reaction to recent trade threats and could be reversed in April and despite the drop, the surveys still point to strong growth. But the fall highlights the risk that lingering trade tensions could damage confidence and prompt firms and consumers to delay investment and major spending plans.
• ? On a more positive note, China's economic growth picked up markedly in early 2018, which could provide a fillip to global trade growth in the near term. Given the betterthan‐expected start to the year, we have made no change to our 2018 China GDP growth forecast (of 6.4%) despite the probable negative effects of trade measures.
• ? Meanwhile, most advanced economies remain in the late expansionary stage of the cycle. And those that show signs of slowing, such as the Eurozone, are doing so from multi‐year highs. While we have nudged down our 2018 Eurozone GDP growth forecast slightly to 2.2%, the pace is expected to remain well above trend. We judge the impact of US tariffs and counter‐measures on the US economy to be subdued and have lowered our GDP growth forecasts for 2018 and 2019 by just 0.1pp.
• ? For now, we see further solid growth for the world economy this year even in the environment of rising protectionism. While there is a risk that a further escalation of trade tensions could trigger a sharper slowdown in global GDP growth, we still see the risks of a full‐blown and damaging trade war as limited and the chances of protectionism leading to recessions as smaller still.

     

World economy

Following estimated GDP growth of 2.3% in 2016 – which was the lowest since 2009 – we expect the global economy to accelerate this year. We forecast GDP growth at 2.6% in 2017 and then see it accelerating further to 2.9% in 2018.     

World Economic Prospects Monthly

Overview: Outlook darkens as coronavirus spreads

• ▀ What began as a supply shock in China has morphed into something much more serious. The effects of financial market weakness and the disruption to daily life around the world will trigger lower consumer spending and investment on top of the disruptions to the global supply chain. We now expect global GDP growth to slow to 2.0% this year from 2.6% in 2019, before picking up to 3.0% in 2021. But a global pandemic would lead to a far bigger slowdown this year.
• ▀ China seems to have made progress in containing the spread of the coronavirus, but the slow return to business as normal has prompted us to cut year-on-year GDP growth in Q1 from 3.8% to 2.3%, the weakest in decades. But we expect a healthy growth rebound in Q2 which will also provide Asian economies with a lift.
• ▀ It is isolation policies not infection rates that determine the economic impact. Outbreaks around the world are leading authorities to announce a growing list of measures to curb the virus spread. At a global level any Q2 rebound will thus be small at best. We expect investment in the advanced economies as a whole to contract on a year-on-year basis in Q2 for the first time since the global financial crisis, while annual household spending growth may slow to its lowest since the eurozone crisis.
• ▀ Our baseline assumes that the global economy will return to business as usual in Q3 and that some catch-up will result in robust H2 GDP growth. Combined with favourable base effects in early-2021, this is expected to result in world GDP growth averaging about 3% in 2021.
• ▀ Since January, we have cut our 2020 global GDP growth forecast by a hefty 0.5pp. But larger revisions may be required if the disruption triggered by shutdowns and other responses to coronavirus proves longer than we assume currently or if more draconian actions are needed in the event of a global pandemic. Our scenarios suggest that the latter could push the global economy into a deep recession.

     

World Economic Prospects Monthly

Overview: Some glimmers of hope start to appear

• ? Prospects for early‐2019 remain downbeat, but latest data offer some glimmers of hope that growth is beginning to stabilise. We continue to expect easier financial conditions and other policy support to trigger a modest acceleration in global GDP growth in the latter part of 2019.
• ? On the face of it, our latest forecasts suggest that we have become more upbeat about the outlook for the global economy. We now forecast world GDP will rise by 2.7% this year and 2.9% in 2020, after last year's 3.2% gain, upward revisions of 0.2pp for both 2018 and 2019 and 0.1pp for next year. But these revisions largely reflect a change in the GDP base year from 2010 to 2015. This has increased the weights of faster‐growing economies such as China at the expense of slower‐growing economies, in turn boosting world GDP growth.
• ? There are plenty of reasons to remain cautious in the near term. For instance, trade indicators have continued to weaken recently, while the global manufacturing PMI has fallen to only just above the 50 no‐change level.
• ? However, there are some signs that both trade and manufacturing data (at least outside the eurozone) may be beginning to stabilise. Just as importantly, the global services PMI has picked up in the early stages of this year. In the past, sustained global slowdowns have tended to see the services PMI follow the manufacturing PMI down. Meanwhile, European retail sales have continued to expand in early‐2019.
• ? Beyond the short term, we remain cautiously optimistic that GDP growth will pick up again. Chinese credit data, which leads hard activity data, has recently improved and, although uncertainties over US‐EU trade relations remain, global trade tensions seem to be waning. Last but not least, more dovish central banks — we no longer expect the Fed to hike rates again in this cycle — and the resultant loosening in financial conditions should support growth in both the advanced and emerging economies.

     

World economy

Following estimated GDP growth of 2.3% in 2016 – which was the lowest since 2009 – we expect the global economy to accelerate this year. We forecast GDP growth at 2.7% in 2017 and then see it accelerating further to 3.0% in 2018, both 0.1 percentage points up from our previous projections from January.     

World economy

Following estimated GDP growth of 2.3% in 2016 – the lowest since 2009 – we expect the global economy to accelerate this year. We forecast GDP growth at 2.8% in 2017 (which is up 0.1 percentage points up from our previous projections from April) and then see it accelerating further to 3.0% in 2018 (unchanged).     

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.

     

World Economic Prospects Monthly

Overview: entering 2018 with plenty of momentum

• ? Further evidence that the global economy ended last year on a high note is consistent with our view that world GDP growth in 2018 will be around 3.2%, a little better than the likely rise of 3% in 2017 and the best annual outturn since 2011.
• ? The global economy has entered 2018 with plenty of momentum. In December, the global composite PMI continued to trend upwards, rising to its highest level of 2017. This was primarily down to developments in the manufacturing sector, with several emerging markets recording especially strong gains.
• ? While the strength of the manufacturing PMI bodes well for global trade, other timely trade indicators, particularly from Asia, have been less positive. On balance, though, we have nudged up our forecast for world trade growth iwn 2018 to 4.8%. But this would still be a slowdown after last year's estimated rise of 6%.
• ? This partly reflects the change in the drivers of GDP growth from 2017. We still expect a modest slowdown in China, triggering a sharper drop‐off in import growth there. Eurozone GDP growth is also likely to slow slightly, to 2.2%, which is still well above our estimate of potential growth. By contrast, we have nudged up our US GDP growth forecast for this year to 2.8% – 0.5pp higher than the probable 2017 outturn – as looser fiscal policy will not be fully offset by tighter monetary policy. The recent rise in commodity prices, further dollar weakness and still‐strong global trade growth all bode well for prospects in many emerging markets.
• ? Some commentators have questioned the durability of the global economic expansion, reflecting the long period of uninterrupted GDP growth and concerns that a financial market slowdown could eventually impinge on growth. But economic expansions do not die of old age. And while equity markets look expensive on many metrics, we expect strong earnings growth to push equity prices higher over the coming months. Meanwhile, although various geopolitical risks remain, more generally economic uncertainty has diminished.

     

World Economic Prospects Monthly

Overview: World growth still seen at just 2.5% in 2020

• ▀ Although recent developments suggest that the risks of an escalation in US-China trade tensions have eased, we doubt this will deliver a significant boost to the global economy. We still expect world GDP growth of just 2.5% this year, the weakest since the global financial crisis, after an estimated 2.6% in 2019. But the risks around the forecast now seem less skewed to the downside.
• ▀ While our view remains that global GDP growth is likely to have softened further around the turn of the year, the decline remains gradual. And latest survey-based measures of activity and sentiment show tentative signs that prospects are beginning to improve, consistent with our long-standing view that the low point for global growth will be in Q1 2020.
• ▀ Just as importantly, the likelihood of the US and China formally signing off a phase one trade deal in mid-January has reduced the chances of a further flare-up in trade tensions between the two economies. However, this has to some degree been offset by the troubling events recently unfolding between the US and Iran.
• ▀ We remain sceptical that the global economy is set for a major growth boost. Any healing in US-China relations may quickly be unwound and a full reversal of the tariffs already implemented remains a distant prospect. Furthermore, some of the associated growth boost is likely to be offset by less policy support. As a result, we have raised our 2020 GDP growth by just 0.1pp in the US but by a more significant 0.3pp in China.
• ▀ Meanwhile, although the ongoing and broad-based monetary policy loosening in both AEs and EMs should start to feed through to growth this year, we doubt this will be a game-changer. Not only is policy loosening at a global level set to be fairly muted, limited spare capacity, the rising stock of global debt and elevated asset prices are likely to reduce the positive impulse from policymakers' actions.

     

World economy

The dire economic data for the lockdown period confirms that the coronavirus pandemic has caused unprecedented and widespread damage to the global economy. We now expect the global economy to have contracted by over 9% in the first half of 2020, while growth should rebound sharply in the second half of the year, we now expect GDP to shrink by 4.5% in 2020 as a whole, much weaker than the 2.8% contraction we anticipated three months ago.     

World economy

Although uncertainties have clearly increased this year and pose downside risks to growth, the latest batch of timely activity indicators suggests that in the shorter term the global economy is resilient to these worries. Given this, we see global GDP growing by 3.1% this year and 2.9% in 2019, just 0.1pp lower than our forecast three months ago and similar to last year's 3% increase.     

World Economic Prospects

Overview: Global upswing delayed

• This month sees our global GDP growth forecast for 2015 revised down to 2.7%, implying no improvement from 2014. At the start of the year, we expected world growth for 2015 at 2.9%.
• A key factor behind the slippage in our global forecast has been a softening of activity in the US. The balance of economic surprises (actual data versus expected) has deteriorated sharply in recent months. As a result, we now expect US growth at 2.7% this year, compared to 3.3% at the start of 2015.
• We are wary of reading too much into the most recent data, as the US and other advanced economies also went through ‘soft patches’ at the starts of both 2013 and 2014, but recovered. Also, the balance of economic surprises for the G10 is only moderately negative – and is strongly positive for the Eurozone.
• One area of concern is sluggish US consumption recently – despite lower oil prices. But with labour market conditions favourable and disposable income growing solidly, we expect this to prove a blip. And the evidence from advanced economies as a whole suggests lower oil prices have boosted consumers.
• There are nevertheless genuine drags on global growth. The strong dollar appears to be weighing on US exports and investment, and curbing profits. It is also damaging growth in some emerging markets through its negative impact on commodity prices and capital flows and via balance sheet effects (raising the burden of dollar‐denominated debt).
• Meanwhile, this month also sees a fresh downgrade to our forecast for China – GDP is now expected to rise 6.6% this year versus 6.8% a month ago. This reflects weakness in a number of key indicators and also the likely impact of a squeeze on local government finances from the property sector slump.
• With the US and China representing a third of global GDP, slower growth there will also tend to retard world trade growth. We continue to expect world GDP growth to reach 3% in 2016, but 2015 now looks like being another year of sub‐par global growth.

     

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.

     

World economy

Despite the mounting threat of more protectionist trade measures, we expect the impact on global growth and trade to be mild. Given this, and the still fairly solid underlying economic picture, we see global GDP growing by 3.2% in 2018 and 3% next year, similar to last year's 3% increase.     

World Economic Prospects Monthly

Overview: Global growth resilient to trade slowdown

• ? It seems increasingly clear that the manufacturing‐ and trade‐driven soft patch in late‐2018 is extending into this year. But we still think that global recession risks remain low and see no reason to make any notable shifts to our outlook for the global economy this year. We continue to forecast that GDP growth will slow from 3.0% in 2018 to 2.7% this year, with a similar outcome seen in 2020.
• ? Various indicators show that trade volumes slowed sharply at end‐2018 and survey indicators for January suggest that the situation has not improved since then (see Chart). The main reason for this weakness has been China, where imports ended the year on a very weak note and we expect a further slowdown in Q1.
• ? We have lowered our forecast of Chinese imports in 2019 by around 1.5pp in response. However, we expect a bounce back in Q2 and beyond; reflecting this, Chinese import growth over the year as whole is still expected to be notably stronger than in the 2015/16 soft patch. In a similar vein, while global trade growth is expected to slow sharply from 4.6% to 3.3% this year (down from 3.6% last month), it should still be stronger than in 2012–16, providing a solid backdrop for exporters.
• ? Meanwhile, financial markets have rebounded sharply from the December sell‐off due to renewed optimism regarding US and China trade talks and a more dovish Fed. We now expect the Fed to leave rates on hold until at least Q3 and hike rates only once this year. This, along with lower government bond yields and weaker inflation, is also likely to reduce the need for monetary tightening elsewhere, particularly in emerging markets (EMs), helping to support global growth later in the year.
• ? Overall, we still see global GDP growth softening in H1, but with a modest rebound in H2 as Chinese growth stabilises and EMs and European growth regain momentum. Sharper slowdowns in China and global trade and financial‐market weakness remain key concerns for the 2020 outlook. But the risk of inflation‐induced policy tightening is still low and the odds of a renewed flare‐up in trade tensions have ebbed lately.

     

World economy

The ongoing soft tone of the latest data confirms that the global economic slowdown continues and the risk that this year will see the weakest GDP growth of the postcrisis period is rising. But with policymakers now expected to turn dovish words into actions soon, we still think recession risks remain low.     

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.     

World economy

Although recent developments suggest that the risks of an escalation in US-China trade tensions have eased, we doubt this will deliver a significant boost to the global economy. We still expect world GDP growth of just 2.5% this year, the weakest since the global financial crisis, after an estimated 2.6% in 2019. But over the past three months, the risks around the forecast now seem less skewed to the downside.     

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.