Weekly Focus
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New global forecasts
Mon, Sep 22 2008, 10:54 GMT
by Danske Research Team
We published our new forecasts for the global economy in the past week. The economy continues to languish follow-ing the two major shocks to growth that have hit in the past year the financial crisis and the run-up in commodity prices. In the coming quarters the developed economies will totter on the brink of recession, with very weak growth in the US, Euroland, the UK and Japan.
In the US we expect to see another leg down in growth in H2 08 as the boost from the tax rebates reverses and housing continues to be a drag while exports will provide less support as global growth falters. We expect a gradual but fragile recovery to kick off in H1 09 as lower infla-tion underpins consumption growth and the drag from housing gradually fades, spreading to the rest of the devel-oped economies later in the year. We believe that the Fed-eral Reserve will stay on hold for a long time, as growth will stay weak and inflation and inflation expectations are com-ing down.
We expect further weakness in the Euro area for the rest of the year and into H1 09. Sluggish consumption growth, rapidly slowing exports and depressed housing markets will be the focal point of the slowdown. We expect a slow recovery to materialise in H2 09 on the back of higher US growth and a rise in real income growth as inflation comes down. The ECB is now expected to deliver two rate cuts of 25bp in H1 09, taking the refi rate to 3.75%.
The slowdown has spread to most emerging markets, with GDP growth and industrial activity weakening in Asia, Cen-tral & Eastern Europe and Latin America. The Middle East is now the only major pocket of strength. The spike in infla-tion on the back of higher crude oil and commodity prices has hit EM Asia especially hard and forced reluctant Asian central banks to tighten monetary policy.
Published on Mon, Sep 29 2008, 07:07 GMT
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