1. Global forecasting service
Economic forecast summary - April 2012
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2. The economy has created an average of
240,000 jobs a month in the past three
months, pushing down the
unemployment rate to 8.2%.
The tone of recent data has been robust.
But income growth remains sluggish and
high oil prices are cutting disposable
income. We have edged up our 2012
GDP growth forecast to 1.9%.
Housing market data has improved
recently but a large overhang of unsold
houses remains a headwind for the
property market.
A drastic tightening of fiscal policy is in
prospect in 2013 for the incoming
administration.

3. The injection of liquidity by the ECB into
euro zone banking system has eased
funding pressures on banks and
sovereigns, notably Italy and Spain.
In Greece a restructuring of debt owed
to private creditors was completed in
March, entailing write-offs of €100bn.
The debt restructuring and additional
austerity measures have paved the way
for a second, €130bn EU/IMF loan deal.
This has averted the risk that Greece
might default on a €14.5bn bond
repayment in March.
We expect the euro zone economy to
contract by 0.7% in 2012.

4. Growth in 2011 was undermined by the
negative impact of the March earthquake
and tsunami as well as a strong yen that
constrained export potential.
The economy lost momentum in the
fourth quarter, contracting by 0.6%, but
one positive development was strong
growth in investment by Japanese
companies.
The economy is expected to grow by
1.5% in 2012 supported by a stronger
export performance and reconstruction
activity. From 2013 we expect the
economy to grow at a rate of between
1-2%.

5. Growth in 2012 will be constrained by
sluggish OECD demand. EMs will still
comfortably outperform their peers in
the developed world in 2012-16.
EM currencies and asset markets
have rallied strongly since the start of
the year as risk appetite has
recovered. Brazil has taken measures
to stem upward pressure on the Real.
In China we forecast growth of 8.2%,
higher than the government’s new,
lowered medium-term target of 7.5%.
Rebalancing the economy away from
investment towards private
consumption will make for less
commodity-intensive growth.

6. Oil consumption growth will be
constrained in 2012 by the weak
OECD economic outlook. It will
average nearly 2% year on year in
2013-16, led by rising demand in the
developing world.
Geopolitical risks are weighing on the
supply picture particularly the
tensions between the West and Iran.
Our forecast assumes a military
outcome is avoided.
Prices will average around US$110/b
in 2012 as supply concerns offset the
negative impact of weaker demand.

7. Consumption growth is expected to
slow in 2012, constrained by weak EU
and growth and somewhat slower
growth in the developing world.
However, rising emerging market
incomes and urbanisation will underpin
medium-term demand growth.
Years of underinvestment, particularly
in agriculture, will support prices.
Nominal prices will remain historically
high in 2012-16, but prices will ease
back in real terms.

8. Sluggish demand will be deflationary
but high oil prices will push up
headline inflation.
The Fed has signalled its intention to
keep interest rates very low until late
2014. A further round of quantitative
easing appears unlikely if the current
rate of job creation is sustained.
The ECB cut rates twice in late 2011,
reversing the two rate rises earlier in
the year. In 2012 we expect the ECB
to keep its policy rate at 1%.
We expect most emerging market
central banks to keep interest rates
broadly stable in 2012.

9. As funding stresses on euro zone
banks and sovereigns have eased, the
euro has rebounded. Having bounced
from a recent low of US$1.26, the
single currency appears to be
establishing a new trading range above
US$1.30:€.
The yen has weakened as risk appetite
has recovered and the Bank of Japan
has become more aggressive in easing
monetary policy.
EM currencies have rebounded. Over
the medium term they will be supported
by positive growth and interest rate
differentials with OECD economies.

10. + Unprecedented policy response after Greek exit prevents contagion 16
- An attack on Iran results in an oil price shock 15
- The global economy falls into recession
15
- The euro zone breaks up
15
+ Stronger than anticipated US growth boosts the global economy 12

11. - Tensions over currency manipulation lead to protectionism 12
- The Chinese economy crashes 10
- US dollar crashes
10
- Economic upheaval leads to widespread social and political unrest
9
- Resumption of monetary stimulus leads to new asset bubbles 8

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