RGE Daily Top 5
Q4 2011 Global Scenario Analysis: High Risk of Recession in Advanced Economies
By Christian Menegatti, Rachel Ziemba and the RGE Economic Research Team: In the short term, macro and policy risks in the eurozone (EZ) and U.S. increase downside risks to global growth. With developed markets (DMs) at a standstill, the limited number of policy bullets raises the risk of recession. In the medium term, gradual rebalancing (narrowly) remains our base-case scenario, assuming policy responses are appropriate and the EZ avoids disorderly default. But demand will stay short of what is needed to close output gaps in DMs, normalization of policy will remain slow and growth will be below potential.
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China Outlook Update: Lean Into the Punch
By Adam Wolfe: We now expect a modest slowdown in Chinese growth in H2 2011; balanced by unexpected upside in Q2, our 2011 forecast remains unchanged. However, we lower our 2012 forecast from 8.8% to 8.3% on exports, which we expect to shave about 0.5-1.0 percentage point from growth in 2012 as emerging market demand fails to fully offset flat export growth to developed markets. We expect the People’s Bank of China to remain on hold this year and next, as inflation begins to decline on base effects and politics delay further tightening.
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Indonesia Outlook Update: No Plans for a Lost Decade
By Michael Manetta: Indonesia remains well insulated from advanced economy woes thanks to its large domestic market, high consumption rate and commodity-heavy export portfolio. As such, we have revised down our 2011 growth forecast only slightly, to 6.3% y/y from 6.5%, while we trim our 2012 forecast to 6.0% from 6.3%. We have raised our 2011 inflation forecast to 5.4%, from 5.2% previously, as headline inflation remained higher than expected this summer, and maintain our call for a 2011 fiscal deficit of around 1.8% of GDP.
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Bank of Canada Shifts to Neutral in the Face of Downside Risks
Citing a deteriorated global outlook, the Bank of Canada (BoC) remained on hold at its September 7 meeting as expected—the eighth pause after three consecutive policy rate increases in mid-2010—and continued its more dovish rhetoric. The Fed’s commitment to maintain monetary stimulus with imminent QE3 suggests the BoC will be in no hurry to resume monetary tightening. Moreover, the recent easing of global energy prices has alleviated pressure on headline inflation, allowing the BoC to remain on the sidelines for longer.
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Sweden's Riksbank on Hold Due to Growth Concerns and Overall Uncertainty
Sweden’s central bank, Riksbank, kept the repo rate unchanged at 2.0% and lowered its rate path forecast on September 7, as was widely expected. Global growth prospects have weakened since Riksbank's previous monetary policy meeting in July—bringing down GDP forecasts for Sweden as well as global interest rate expectations. There is now a considerable downside risk to our forecast for two hikes in 2012 and a 2.5% repo rate at end-2012 due to RGE's bleaker global growth expectations—we will be revising our forecasts down soon.
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