World Economic Prospects Monthly

Overview: A gentle growth slowdown from Q1's peak▀ Recent activity indicators have provided further evidence that the synchronised global acceleration in growth started to falter in early 2018. But while we have lowered our world GDP growth forecasts for 2018 and 2019 to 3.1% and 2.9% respectively (both 0.1pp lower than last month), the pace looks set to remain strong by post‐global financial crisis standards. ▀ On balance, the news over the past month has been negative. Although the global composite PMI rose in April, this only partially reversed the previous month's sharp fall, leaving it well below its recent peak. In addition, the weakness of the services indices implies that the slowdown may be more than just a reaction to the threat of protectionism. Trade indicators have also softened a touch, and there are tentative signs that China's growth momentum has started to ease. But our growth forecasts for the US and the Eurozone remain unchanged at 2.8% and 2.2% respectively. ▀ While consumer sentiment indices have been more resilient than the business survey indicators, a key risk is that higher oil prices following the US decision to reimpose its sanctions on Iran lead to weaker real income growth and hence a slowdown in consumer spending. For now, we have made only modest upward revisions to our CPI forecasts – this reflects our view that the oil price will fall back to $72pb by year end rather than rise further. In addition, we have made some modest downward revisions to our core inflation forecasts. However, tighter oil supply means that we judge the tail risk of a sharp rise in the oil price has risen. ▀ Compared with a month ago, we now see a slightly faster deceleration in GDP growth over the next year or so. But the underlying message is still that the expansion is losing momentum only gently – growth should remain at healthy levels by post‐crisis standards. The higher oil price is unlikely to prompt an inflation surge, implying only measured monetary policy normalisation in the major economies and little risk of a stagflation‐style scenario emerging.