Global financial market volatility increased dramatically in August as the Chinese revalued their currency and speculation about the timing of the first interest rate increase by the Federal Reserve began to rise.
Despite the heightened policy risks in the world’s two largest economies, Standish growth and inflation forecasts went little changed over the month. Pockets of upgrades to our forecasts, such as growth in the U.S., were more technical in nature; however, large emerging markets, such as Brazil and South Africa, continue to face remarkable downside risks. Going forward, the balances of risks are more biased to the downside spanning 2015 and 2016 across the regions for growth and inflation. There are slight glimmers of upside potential, such as in Japan; however, these upside risks are more idiosyncratic in nature.
We look to an improvement in the global commodity and trade cycle to upgrade our world growth outlook. We are not there yet.