Global Macro Views

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April 2016 GMV

Standish

Standish - Global Macro Committee

“Global growth picks up in 2017, as the recent pothole recedes in the rearview mirror and monetary policy remains very accommodative.”

The year opened on a softer note for economic activity than we expected last month. Strains in financial markets set off by the commencement of Federal Reserve tightening in December, concerns about the sustainability of the Chinese economic expansion, and softness in commodity prices set back household and business spending, especially in developed market economies. The response of monetary policy makers, with the Fed scaling back its tightening intentions and the ECB and BOJ stepping more heavily on the accelerator, and a steadying of the outlook in China incline us to believe the weakness will be short lived. Accordingly, we trimmed our assessment of global GDP growth 0.2 percentage points, implying an advance this year at the same 2.9% pace of 2015. Global growth picks up in 2017, as the recent pothole recedes in the rearview mirror and monetary policy remains very accommodative. We have tempered our enthusiasm on the extent of the increase, however, in light of the challenges to the expansion of aggregate supply among developed economies. We also view this outlook as more clouded than usual. After all, the 2016 calendar is chock full of political events of material importance and great uncertainty not the least including a referendum in the UK, a possible impeachment in Brazil, and elections of representatives in Japan and a president in the US.

 The scaling back of growth outcomes this year is matched by a trimming to our inflation forecast for 2016. But, with the commodity price decline mostly absorbed and growth resuming at a quicker (albeit not quick) pace, inflation nudges up subsequently in developed market economies. Expected stabilization in a few key emerging market economies, however, removes some double-digit readings from our 2017 tally, pulling global inflation down a tad in that year. 

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