The Global Macro Outlook - Divergences become chasms

Whilst weak resource prices are battering many countries, consumers benefit. We have beneath consensus 2016 real GDP growth forecasts for Canada, South Africa and Australia, but this month modestly revise up our 2016-17 growth forecasts for China (to 6.7% and 6.5%, from 6.5% and 6.0%, respectively).

Please see pages 9-11 for the latest insights from Colin Hamilton and the Macquarie global commodities team. There has been another round of significant forecast cuts this month.

Supported by large falls in energy prices, service sector-PMIs remain buoyant in advanced economies (85% of employment in two-thirds of the world). Broad money and credit growth are now growing moderately in advanced economies.

Our 2015, 2016 and 2017 global real GDP growth forecasts are 2.6%, 2.8% and 2.8% respectively, implying a continuation of our “the long grinding cycle” forecast of 2.5% to 3.0% pa global growth. We expect neither global lift-off, nor global slump.

There are two core forecasts underpinning our outlook:
1) We believe the US is on track for a gradual trajectory of Fed Funds rate increases. Our base case calls for this to begin on 16 December 2015, with the Fed emphasizing economic strength. We are forecasting the Fed Funds rate increasing 25bp each quarter until autumn 2017. Nonetheless, US real GDP growth is forecast to remain above 2% in both 2016 and 2017.

2) We believe the Chinese authorities have the desire & ability to maintain control of the RMB, which we forecast will depreciate only another 2-3% versus the US$ through end-2016 RMB6.60/US$. We expect the RMB to appreciate modestly in 2017.

The US$ in 2016: After a period of broad US$ strength in 2015, we believe 2016 will see individual currencies at different times pass their lows versus the US$. Whilst relative monetary policy stances will remain important, resulting capital flows now have to exceed mounting current account surpluses in Japan and the Euro-zone (partially reflecting the falls in oil and other resource prices). On our forecasts the Yen bottoms first (1Q 2016), and then the Euro (2Q 2016). (Read Report)

Source : Macquarie Equities Research