Macro forecasts: charts and commentary

Our round-up of major economies; featuring charts and commentary.

2 minute read

Summary

  • US - Growth picked up pace over the course of 2017 and we expect growth to be a little higher this year
  • Eurozone - Despite strong business surveys and consumer sentiment readings, GDP growth should slow a little this year
  • UK - After 10 years, GDP will now be almost 6 per cent lower than it would otherwise have been
  • Canada - Growth surprised to the upside in 2017. We expect the rate of growth to moderate to around 2 per cent 
  • Japan - The economy remains in a good place. And while growth is expected to moderate slightly, it is still likely to remain robust
  • China - After a year that has seen Chinese growth defy predictions of a slowdown repeatedly, some signs of moderation are emerging

United States

Strong underlying growth dynamics at the end of 2017 received a further boost with the passage of household and corporate tax cuts at the end of last year and a boost to government spending. Together those fiscal measures are likely to add between 0.5-1 per cent to growth this year and only marginally less in 2019. As such we have revised up our growth estimates this year and next, and remain above consensus. With stronger growth and a further tightening of the labour market, we expect core inflation to move back to the 2 per cent target by the middle of 2018 and to be above that in 2019. We expect the Federal Reserve will deliver four rate rises in each of 2018 and 2019.

chart - figure 1 US GDP, CPI, and policy rate

Eurozone

Sentiment across the Eurozone has slipped slightly from recent peaks, but remains upbeat and argues for another year of above-trend growth in 2019. A small moderation in growth would be welcome, as there is much less spare capacity now remaining and trend growth is estimated at only a little above 1 per cent. With inflation still subdued and only expected to rise slowly back towards target, the ECB will withdraw extreme stimulus very gradually. Asset purchases should halt this year, while modest policy rate increases are more likely to come next year rather than this.

chart - figure 2 - Eurozone, GDP, CPI, Policy rate

United Kingdom

The UK outlook continues to be dominated by Brexit negotiations with risks still tilted to the downside. The modest pace of current growth (around 1.5 per cent annualised) is in line with the lower growth rate of supply-side potential that is now generally accepted. As a result, the Bank of England believes a modest tightening bias is appropriate. However, if inflation falls further in 2018, as we expect, that view could be reassessed, especially if growth were to weaken. Prospects are not calamitous, but with low rates, a weaker currency and a favourable global backdrop, the UK should be doing better.

chart - figure 3 - UK, GDP, CPI, Policy rate

Canada

Growth surprised on the upside in 2017 and labour market slack was absorbed more quickly than expected. Going forward, growth is expected to slow. High levels of debt in the economy and a stretched housing market mean that consumption and investment will contribute less to growth this year as the impact of higher interest rates and new mortgage guidelines take effect. NAFTA also presents a source of uncertainty and will weigh on the outlook. That said, growth remains above potential and wage pressures are clearly coming though. Risks remain on the more hawkish side, with an additional hike likely later in the year. 

chart - figure 4 - Canada, GDP, CPI, Policy rate

Japan

Strong upside growth surprises in 2017, fuelled by domestic demand, suggest significant momentum into 2018. With the global cycle strong, net exports are likely to contribute positively. Surveys and corporate profitability point to a strong investment outlook. Upside surprises to 1.8 per cent yoy growth are likely. Inflation should grind higher gradually, but will probably fall short of the 2 per cent target by 2019. With the yen rising against the US dollar recently, the stakes are high for the BoJ to tailor its message carefully to a market nervous about a shift in policy, which could have large implications for inflation expectations and in turn the central bank’s inflation target.

chart - figure 5 - Japan, GDP, CPI, Policy rate

China

Now that President Xi Jinping has consolidated power, policymakers will re-focus on reforms. At the top of the agenda is financial stability which means deleveraging will continue and growth will slow. However, the 6.5 per cent target will likely be achieved at the start of the president’s ‘third term’. The lower fiscal deficit target (2.6 per cent vs. 3 per cent) looks achievable if they cut infrastructure spending. While a policy mistake is still the main risk for China, escalation of trade tensions between the US and China could also pose a threat to growth. Inflation remains benign which means the PBoC will maintain its neutral policy stance. We expect the currency will also remain stable.

chart - figure 6 -China, GDP, CPI, Policy rate

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Compliance code: RA18/0358/01102018In the UK & Europe this material has been prepared and issued by AIGSL, registered in England No.1151805. Registered Office:

St. Helen’s, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1Raffles Quay, #27-13 South Tower, Singapore 048583.

In Australia, this material is being circulated by way of an arrangement with for distribution to wholesale investors only. Please note that Aviva Investors Pacific Pty Ltd (AIPPL) does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 30, Collins Place, 35 Collins Street, Melbourne, Vic 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is registered with the Ontario Securities Commission (“OSC”) as a Portfolio Manager, an Exempt Market Dealer, and a Commodity Trading Manager. Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission.

Aviva Investors Americas is also a commodity trading advisor (“CTA”) and commodity pool operator (“CPO”) registered with the Commodity Futures Trading Commission (“CFTC”), and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606

Compliance code: RA18/0358/01102018

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