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World Economic Prospects
Publication year - 2016
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.12238
Subject(s) - brexit , economics , surprise , world economy , yield (engineering) , referendum , quantitative easing , economy , monetary economics , international economics , monetary policy , european union , political science , law , metallurgy , materials science , politics , psychology , social psychology , central bank
Overview: global economy unfazed by Brexit voteOur world GDP growth forecast for 2016 has been revised down this month, to 2.1% from 2.3%. In large part, this reflects a weaker profile in the US where growth is now seen at only 1.5% this year (from 2% before) following a weak H1. For 2017, however, our global growth forecast is unchanged at 2.6%. This reflects the fact that, more than a month after the UK Brexit vote, conditions in the global economy look relatively positive. Financial markets, after an initial dip, have rallied strongly with world stocks above their pre‐referendum levels and high‐yield bond spreads narrower. One reason for this is a real improvement in the pattern of incoming economic data, especially in the advanced economies. The Citigroup economic surprise index for the G10 has risen to its strongest reading since the start of 2014. Meanwhile, back‐to‐back strong employment reports in the US suggest consumer spending should remain resilient there. The renewed drop in oil prices in recent weeks should also be a broader, if modest, positive for global growth. Lower bond yields have also helped, although insofar as these reflect expectations of policy easing, moves so far have been limited: Japan's recent policy easing proved disappointing in scale, while the bolder Bank of England moves have come too recently and operate too narrowly to have had much impact. There are also still considerable weaknesses in the global economy. Weak banks in Europe could damage credit supply, investment remains sluggish in the advanced economies and world trade growth is still very modest. This month sees our world trade growth forecasts revised down to 2.6% for 2017 and 3.3% for 2018 (from 3.4% and 3.9%) as we expect the trade‐GDP elasticity to remain lower for longer. Given these weak points, we continue to take the view that there is a case for a relaxation of fiscal policy in the advanced economies, and especially a boost to government investment which has dropped considerably over recent years in the G7.