World Economic Prospects

Abstract

Overview: Forecasts steady as data flow proves mixed Our world growth forecasts this month are little changed at 2.3% for 2016 and 2.7% for 2017. The overall growth outlook remains sluggish, with world growth well below the average pace of the last thirty years of around 2.8% per year. Over recent months we have argued risks to our forecasts remain skewed to the downside, especially in the wake of the fizzling out of the global equity boom and tightening credit conditions since last year. This remains our position, though over the last month the message from incoming data has been quite mixed. April appears to have been a better month for global industry and trade, but the news flow for May has been less encouraging. A particular concern in markets has been May's weak US payrolls figure in the US. This likely overstates labour market weakness, but there are broader signs that employment growth in services in the US and other countries has slowed. This is a threat to continued robust growth in consumer spending. Meanwhile, investment activity also remains subdued. Imports of machinery and capital goods across the main economies are generally trending down. This is not in line with the pick‐up in capital spending which is needed to shift the global economy into a higher gear. Recent weeks have also seen a further slide in global bond yields, which in our view reflects continued uncertainty about global growth prospects as well as the increased likelihood that the Fed will delay raising rates beyond June – to July or even later. Low bond yields mean government borrowing is cheap, and in principle make the option of supporting growth through fiscal stimulus more attractive. Public investment in the G7 economies has been weak over recent years, and was stagnant in the year to Q4 2015 – adding to the investment malaise. In our view, there is scope for more fiscal stimulus in a number of major economies. But political resistance to this approach is strong and the recent G7 summit did little, if anything, to develop a coordinated policy approach in this area ‐ or indeed other areas.