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New forecasts published
Mon, Jul 7 2008, 06:37 GMT
by Danske Research Team
We published our new global forecasts in the past week. Generally, the developed economies remain seized due to tighter credit, slowing housing markets and a significant erosion of purchasing power stemming from higher com-modity price inflation. While these economies performed better than feared early in the year, the near-term pros-pects have deteriorated somewhat further. The outlook for the coming quarters remains sluggish but not disastrous.
The US will probably avoid a recession, as the tax rebates will help the economy over the summer. However, the economy remains fragile, and growth will soften again later in the year as the fiscal stimulus fades. Growth will average just 1% until Q1 09. Later in H1 09, the economy will begin to gradually recover on the back of the lagged impetus from monetary policy, a stabilisation of the housing market and a boost to real income growth from lower inflation. We ex-pect the Federal Reserve to remain sidelined for much longer than the markets expect despite its inflation con-cerns. Hence, the central bank will do little beyond tough talk about inflation.
Euroland faces a hard time, with a stronger currency and further ECB tightening coming on top of the global head-winds. Importantly, signs of weakness in the German econ-omy are now appearing. Hence, Euro area growth is set to slow below trend during H2 and into 2009, with rising risks of contraction. Headline inflation will rise further, peaking at 4.2% between August and October. However, with evi-dence that the slowdown is materialising fast, we expect the ECB to remain on hold at 4.25% for an extended period. Nevertheless, the near-term risk is for further tightening especially if oil prices do not level out.
Published on Mon, Jul 7 2008, 11:22 GMT
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Danske Bank
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