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Contrary to conventional wisdom, economic recoveries following a large devaluation have not always resulted from a surge in net exports. Instead, they have often been driven by rising consumption. This bodes well for Greek households if Greece eventually …
29th June 2015
If, as seems increasingly likely, Greece defaults and exits the euro-zone within the coming months, the implications for the world economy should be fairly modest. Indeed, it could even turn out to be a positive development, as the euro-zone and Greece …
Until recently there was a lot of scepticism that central banks would be able to set policy rates below zero. But in practice, the introduction of negative policy rates by four European central banks over the past year has been relatively straightforward. …
25th June 2015
World trade volumes edged up in April, but this follows a run of very weak data and left the year-on-year growth rate at a historically low pace. Stronger global growth during the rest of the year should lift world trade to some extent, but it looks set …
24th June 2015
Having declined in lock-step with one another over the past three and a half years, we think the unemployment rate is likely fall more rapidly in the US than in the UK between now and the end of 2017. This suggests that interest rates will rise more …
Preliminary business surveys for June still suggest that global growth will rebound following a weak start to the year. However, the recovery is set to remain uneven, with growth in the US (and UK) likely to be strong over the rest of this year and next …
23rd June 2015
Devaluations have generally had a more positive impact on growth in economies which have a lot of spare capacity, where monetary conditions have been excessively tight and where a debt write-off is needed. All of these conditions were true of Russia in …
18th June 2015
Yesterday’s FOMC statement and interest rate projections suggest that the US Fed is still on track to begin raising rates in September. Nevertheless, broader monetary conditions should remain highly accommodative as policy elsewhere is eased and the …
Headline inflation looks certain to rebound sharply in most advanced economies during the coming months as the impact of last year’s oil price slump unwinds. Looking further ahead, faster wage growth should push core inflation in the US above the Fed’s 2% …
12th June 2015
At first sight, the concept of a sovereign default appears straightforward: a government either pays its debt, or it does not. But on closer inspection the picture is more blurred. For example, Greece’s plan to delay its payments to the IMF would not …
5th June 2015
The rebound in global oil prices since January means it is all but certain that headline inflation in advanced economies will pick up sharply towards the end of the year. For most countries, this has further eased fears of a prolonged bout of deflation. …
4th June 2015
Crude oil prices appear to be settling in a range of $60 to $70 per barrel, which we regard as ideal (a “Goldilocks” scenario) for the global economy. Prices are high enough to ease the pressure on key producers, encouraging OPEC to retain its current …
3rd June 2015
Although both sovereign and corporate bond yields in advanced economies rose in early May, they remain low by past standards. And with most central banks likely to maintain ultra-loose policy this year and next, global monetary conditions will stay highly …
Final manufacturing surveys for May, published by Markit today, provide some reassurance that global growth should continue at a respectable pace this year. Among the advanced economies, prospects still look brightest for the US and the UK, while the …
1st June 2015
So far this year, households in advanced economies do not seem to have been spending their windfall from lower oil prices. However, this is partly because they stepped up their consumption late last year and partly because some price cuts are yet to take …
Two themes are likely to dominate global monetary policy over the next couple of years. First, policy in advanced economies in aggregate looks set to remain ultra-loose as the ECB and BoJ persist with QE. And second, the US Fed is likely to raise rates …
29th May 2015
It is only a matter of time before China passes another milestone as the renminbi is added to the basket of currencies which determine the value of the IMF’s special drawing right. However, we doubt that this will take place this year. What’s more, when …
26th May 2015
The sharp slowdown in trade growth since the start of the year partly reflects the weakening in the world economy in the first quarter. However, trade has also been depressed by a series of temporary factors over the past few months which are likely to be …
22nd May 2015
Preliminary PMIs for May, which were published today, support our view that global growth is likely to pick up after a soft patch at the beginning of the year. We still think activity will rebound strongly in the US, but we expect growth to remain …
21st May 2015
The past four years have seen the slowest pace of global economic integration since the Second World War. With trade talks stalled and most parts of the world already integrated into the global economy, trade growth is likely to remain subdued over the …
18th May 2015
We can all be caught up in the mood of the moment, but talk of a “rout” in bond markets is, at best, premature. Yields are still remarkably low by past standards. While they may rise further, notably in the US, this should generally be in tandem with …
13th May 2015
Consumers in advanced economies have so far opted to save, rather than spend, their oil windfall. However, strengthening labour markets, buoyant asset prices, and high consumer confidence all point to households spending more freely over the coming …
12th May 2015
Oil prices have recovered to levels that should still provide a major boost to consumers, while easing the pressure on producers. However, further increases could undermine the recovery in weaker economies, notably the euro-zone, especially if they …
7th May 2015
GDP growth was faster in the euro-zone than in the US in Q1, but we don’t expect this to be the start of a new trend. The single currency area has received a temporary boost from the fall in the euro as well as from lower oil prices. In the US, however, …
In theory the structural budget balance, which takes account of whether an economy is running above or below its potential level, provides a useful summary of a government’s fiscal position. On this basis much of the euro-zone is in a stronger fiscal …
6th May 2015
The weakness of the US and China in Q1 and some softer data elsewhere have led to suggestions that a broad-based global slowdown is now underway. We think that is not the case. Growth has held up well in many other countries and it should rebound in the …
1st May 2015
Global monetary conditions remain highly accommodative as the world’s major central banks have kept policy rates close to zero and some have continued with large scale asset purchases. Conditions in the euro-zone have improved significantly in the past …
30th April 2015
Signs that price pressures have picked up a bit during the past month or two have prompted some to suggest that the threat of deflation has vanished almost as suddenly as it appeared. We disagree. In the US and UK, headline inflation was always likely to …
27th April 2015
Over the past four years the volume of world trade has grown at a much slower pace than prior to the financial crisis. Recent downward revisions to WTO forecasts show that the international organisations are beginning to come round to our view that the …
23rd April 2015
Business surveys released today suggest that the world’s four largest economies slowed in April. But global growth has not collapsed. Indeed, our flash global manufacturing PMI still points to a solid expansion in the world economy, despite slowing …
China’s growth rate is set to slow a little further in the coming years. This will have a significant knock-on effect on some other emerging economies, but we think its overall impact on growth in the rest of the world should be fairly modest. … Further …
21st April 2015
One of the most disappointing features of advanced economies in recent years has been the weakness of investment. In part, this is because investment tends to mirror the performance of the economy as a whole. But the legacy of overinvestment in housing …
20th April 2015
The pace of global growth slowed in the first quarter, but it is likely to recover during the rest of the year and in 2016. The windfall gains from lower oil prices, rising employment and continued loose monetary conditions will feed through to stronger …
17th April 2015
The IMF is making headlines with its forecast that the world economy faces a “new reality” of lower potential growth during the coming years. But arguably, it is the IMF which is catching up with reality. Global growth slowed several years ago and does …
14th April 2015
Quantitative easing in the euro-zone and Japan has provided a big boost to equity markets which in turn should bolster household wealth. But barring a major recovery in the housing market, the impact of wealth effects on consumption in both economies is …
9th April 2015
For a second successive year, global GDP growth dropped sharply in Q1 due to a slowdown in the US and China. But business surveys, which may be a better gauge of the underlying health of the economy, suggest that activity has, if anything, strengthened …
8th April 2015
Although the asset purchase programme announced by the ECB this year is smaller than that announced by the Bank of Japan in 2013, the initial response of financial markets has, if anything, been larger. However, this may not be a good indicator of how …
3rd April 2015
It is now clear that there was a sharp drop in global growth in the first quarter of 2015. But activity is likely to rebound in the second and third quarters, just as it did last year. Indeed, the pace of world GDP growth in the year as a whole will …
2nd April 2015
The launch of “full blown” quantitative easing by the ECB this year has been greeted enthusiastically by financial markets. However, the global track record of QE since it was first adopted by the Bank of Japan in 2001 suggests that, while it is sometimes …
1st April 2015
Broad money growth in the euro-zone has accelerated to its fastest rate since April 2009, supporting other evidence that the recovery there is gaining some momentum. Meanwhile, the pick-up in broad money growth in the US indicates that its underlying …
31st March 2015
The path of monetary policy in the US and UK is unlikely to change significantly because of the recent appreciation of the dollar and the pound. Admittedly, the strength of these currencies is one reason why the “lift-off” may be a little later than …
27th March 2015
World trade volumes fell in January, following an increase the previous month. Looking ahead, a number of factors suggest that the growth of world trade may pick up a bit in the coming months, but we don’t expect it to return to pre-crisis levels. … World …
24th March 2015
Preliminary business surveys published today suggest that the pace of global growth in Q1 was little changed from the end of last year. But this is partly due to weather-related disruption in the US and a sharp slowdown in China, while activity in the …
Concerns about the global impact of tighter Fed policy are likely to resurface later this year, but we think these worries are exaggerated. Even if rates are hiked, US monetary policy will remain loose by past standards, while other major central banks …
19th March 2015
Concerns about the possible negative side effects for the rest of the world from QE by the ECB look overdone. Admittedly, the appreciation of other currencies against the euro will be a headwind for exporters elsewhere, but this effect should be small and …
17th March 2015
Some indicators suggest that the euro-zone economy may grow faster than the US in Q1. But this is largely because unusually severe weather has hit US activity. While the euro-zone economy has gained some momentum, growth will almost certainly remain …
16th March 2015
Many advanced economies will experience several months of negative headline inflation this year as a result of the plunge in oil prices, but few are at risk of a prolonged or damaging bout of deflation. In the US and UK, where economic growth should …
12th March 2015
The surge in the US dollar to multi-year highs has triggered many worries, including the threat to the US recovery, heightened risks of global deflation via the impact on commodity prices, and the potential damage to emerging economies. All of these fears …
The ECB started its quantitative easing programme this week and the US Fed is likely to begin tightening policy in June. Nonetheless, we expect real interest rates to remain higher in the euro-zone than in the US or even Japan, at least for the next year …
10th March 2015
Household spending has picked up sharply in response to the collapse in oil prices. In January, the growth rate of underlying retail sales in advanced economies reached its highest level since 2006. Even consumers in the euro-zone are participating in the …
5th March 2015
