Q3 2018 Global Economic Forecasts © 2018 Euromonitor International 1 introduction Euromonitor International Analytics offers precise answers to vital business questions in an increasingly fast-paced and uncertain world. Our Macro Model provides regularly updated forecasts and “what-if” scenarios for core macroeconomic variables, including gdp, growth and unemployment. Its global scope ensures our macro forecasts and scenarios reflect the economically inter-connected world in which we live. The Global Economic Forecasts report focuses on quarterly macro changes for the worlds key economies and what these mean to our view of the likely, optimistic and pessimistic scenarios for the global economy. Ultimately, we help businesses stay ahead of risks and opportunities as they emerge on a macroeconomic basis. Global growth is forecast to reach 3.8% over 20182019, but the country-by-country outlook has turned patchy. Among the advanced economies, the US is projected to see a stronger growth in the coming quarters, while the Eurozone, Japan and the UK have experienced some bumps in 2018. Advanced economies real gdp is expected to grow by around 2.0% annually over 20182019.© 2018 Euromonitor International 2 Emerging economies are projected to see 5.1% real gdp growth over 20182019, though they have not escaped the growth disparities either. Rising trade tensions, a stronger US dollar and higher oil prices have disfavoured Asian economies, while some oil exporters saw positive effects. Source: Euromonitor International Macro Model© 2018 Euromonitor International 3 The Brent crude oil price surged by 60% between June 2017 and June 2018, boosting inflation in many advanced and emerging markets. Although the global and regional growth figures suggest a largely unchanged outlook, the risks to the global economic growth have increased. The escalation of trade protectionism has raised the probabilities of more severe scenarios such as a major trade war or a global downturn. Emerging market vulnerability has also increased on the back of lower investor confidence and contagion fears following Turkeys financial turmoil. In the worst-case scenario, all these risks could merge leading to a global economic crisis. Source: Euromonitor International from EIAGLOBAL ECONOMIC FORECASTS Q3 2018 © 2018 Euromonitor International 4 country highlights EUROZONE UK The Eurozone economy has slowed down, yet private confidence remains high and borrowing costs are low. Real gdp growth forecast lowered to 2.1% in 2018 and 1.8% in 2019. Brexit uncertainty continues hurting the UK economy. Following a weak economic performance in q1 2018, the real gdp growth forecast has been downgraded to 1.2% in 2018 and 1.3% in 2019. We have raised US real gdp growth forecasts to 2.7% in 2018 and 2.6% in 2019. Fiscal stimulus is the key contributor to the faster growth, while private sector confidence remains high. US Weaker-than-expected q1 2018 economic performance in Japan and tensions in the foreign trade arena have resulted in a real gdp growth forecast decline to 1.1% in 2018 and 1.0% in 2019. JAPAN 2018 2018 2018 gdp growth gdp growth gdp growth 2019 2019 2.7% 2.1% 1.2% 1.8% 1.3% 2018 gdp growth 2019 1.1% 1.0% Source: Euromonitor International 2019 2.6% GLOBAL ECONOMIC FORECASTS Q3 2018 © 2018 Euromonitor International 5 country highlights RUSSIA INDIA A higher oil price has had a positive impact for the Russian economy. Domestic demand is also supporting gdp growth. We see real gdp grow by 1.5% in 2018 and 1.7% in 2019. Indias economy appears to be back on track. Investment growth is expected to continue as demand improves. This keeps our real gdp growth forecast unchanged at 7.4% in 2018 and 7.5% in 2019. Lower growth in q1 2018, falling consumer confidence and a truckers strike have prompted us to cut Brazils real gdp growth to 1.9% in 2018. The forecast for 2019 is unchanged at 2.5%. BRAZIL Chinas gdp rose by 6.8% in the first half of 2018, but output growth is likely to slow in the second half. The real gdp growth forecast remains unchanged at 6.5% in 2018 and 6.3% in 2019. CHINA 2018 2018 gdp growth gdp growth gdp growth 2019 2019 1.5% 7.4% 1.7% 7.5% gdp growth Source: Euromonitor International 2018 2019 1.9% 2.5% 2018 2019 6.5% 6.3% GLOBAL ECONOMIC FORECASTS Q3 2018 © 2018 Euromonitor International 6 gdp forecasts revisions over last quarter COUNTRY 2017 % 2018 (F) % 2019 (F) % 2020 (F) % 20212025 AVERAGE (F) % 2018 FORECAST CHANGE Percentage points 2019 FORECAST CHANGE Percentage points Advanced US 2.3 2.7 2.6 2.1 1.6 0.2 0.2 Canada 3.1 1.9 1.8 1.7 1.7 0.0 0.1 Japan 1.7 1.1 1.0 0.6 0.7 -0.3 0.0 Eurozone 2.5 2.1 1.8 1.7 1.4 -0.2 -0.1 France 2.0 1.9 1.8 1.6 1.5 -0.3 -0.1 Germany 2.5 2.0 1.7 1.7 1.1 -0.5 -0.2 Italy 1.6 1.2 1.1 1.0 1.0 -0.2 -0.1 Spain 3.1 2.7 2.3 1.9 1.4 0.0 0.0 UK 1.8 1.2 1.3 1.4 1.6 -0.2 0.0 Emerging China 6.9 6.5 6.3 6.0 5.3 0.0 0.0 India 6.3 7.4 7.5 7.5 6.5 0.0 0.0 Brazil 1.0 1.9 2.5 2.5 2.4 -0.5 0.0 Mexico 2.3 2.2 2.3 2.4 2.8 0.0 0.0 Russia 1.5 1.5 1.7 1.6 1.5 -0.1 0.0GLOBAL ECONOMIC FORECASTS Q3 2018 © 2018 Euromonitor International 7 inflation forecasts revisions over last quarter COUNTRY 2017 % 2018 (F) % 2019 (F) % 2020 (F) % 20212025 AVERAGE (F) % 2018 FORECAST CHANGE Percentage points 2019 FORECAST CHANGE Percentage points Advanced US 2.1 2.6 2.4 2.1 2.0 0.2 0.1 Canada 1.6 2.4 2.2 2.0 2.0 0.4 0.1 Japan 0.5 1.0 1.2 1.6 1.3 0.1 -0.1 Eurozone 1.5 1.6 1.7 1.7 1.9 0.1 0.1 France 1.1 1.8 1.6 1.6 1.8 0.3 0.1 Germany 1.7 1.9 1.8 1.8 2.0 0.2 0.1 Italy 1.2 1.1 1.3 1.5 1.7 0.0 0.0 Spain 2.0 1.8 1.8 1.8 2.0 0.4 0.2 UK 2.7 2.6 2.4 2.1 2.0 -0.1 0.1 Emerging China 1.6 2.1 2.4 2.5 2.5 0.0 0.2 India 2.5 5.0 4.9 4.8 4.8 -0.1 0.0 Brazil 3.5 3.3 3.9 4.0 4.0 -0.2 0.0 Mexico 6.1 4.7 4.0 3.5 3.2 -0.1 0.0 Russia 3.7 2.6 4.2 4.0 4.0 -0.3 0.5GLOBAL ECONOMIC FORECASTS Q3 2018 © 2018 Euromonitor International 8 interest rate forecast Advanced Economies Interest Rate Forecast % 2015 2016 2017 2018 2019 2020 2021 US Eurozone 0.0 1.8 0 1 2 3 4 % 2015 2016 2017 2018 2019 2020 2021 UK Japan 0.0 0.5 -0.5 0 0.5 1 1.5 2 BRIC Countries Interest Rate Forecast % 2015 2016 2017 2018 2019 2020 2021 India China 0 1 2 3 4 5 6 7 8 9 4.4 6.1 % 2015 2016 2017 2018 2019 2020 2021 0 2 4 6 8 10 12 14 16 18 Brazil Russia 6.5 7.3 Source: Euromonitor International Macro Model Source: Euromonitor International Macro Model© 2018 Euromonitor International 9 GLOBAL ECONOMIC FORECASTS Q3 2018 major forecast revisions Eurozone France and Germany have been at the core of our downgrade of the Eurozone outlook, with reductions in 2018 real gdp growth forecasts of 0.30.5 percentage points. Part of the slower growth in the first half of 2018 has been due to temporary factors such the earlier timing of certain tax increases and transport strikes in France. Beyond that, private sector sentiment has declined since the end of 2017, the global trade outlook has worsened and oil prices have increased the costs of production. Nevertheless, the real gdp growth of around 2% in 2018 still represents quite a respectable performance for France, Germany and the Eurozone economy, significantly above their long-term potential growth rate.© 2018 Euromonitor International 10 GLOBAL ECONOMIC FORECASTS Q3 2018 major forecast revisions Brazil Real gdp growth in q1 2018 was lower than expected, business and consumer confidence have declined and a truckers strike slowed down activity in many sectors, especially in agriculture. Political uncertainty about the results of the upcoming elections in October 2018 has also increased. As a result, we have reduced the 2018 real gdp growth forecast for Brazil by 0.5 percentage points to 1.9%. © 2018 Euromonitor International 11 GLOBAL ECONOMIC FORECASTS Q3 2018 major forecast revisions Japan Real gdp growth in q1 2018 declined to 1% year-on-year, significantly below expectations. Growing uncertainty about the trade outlook, and in particular the possibility of the US tariffs on Japanese car exports, have contributed to a decline in business confidence. These factors have led to a downgrade in our 2018 real gdp growth forecast for Japan to just over 1%.© 2018 Euromonitor International 12 GLOBAL ECONOMIC FORECASTS Q3 2018 growth in 20182019, adding around 0.50.7% growth annually. This comes from a combination of tax cuts and increases in federal government spending in recent congressional bills. General outlook We have upgraded US gdp growth forecasts to 2.7% in 2018 and 2.6% in 2019. Fiscal stimulus is the key contributor to the faster than trend the us INDICATOR 2017 % 2018 (F) % 2019 (F) % 2020 (F) % 20212025 AVERAGE (F) % 2018 FORECAST CHANGE Percentage points 2019 FORECAST CHANGE Percentage points Real gdp growth 2.3 2.7 2.6 2.1 1.6 0.2 0.2 Inflation 2.1 2.6 2.4 2.1 2.0 0.2 0.1 Federal Funds Rate 1.0 1.9 2.8 3.3 3.0 0.1 0.3© 2018 Euromonitor International 13 GLOBAL ECONOMIC FORECASTS Q3 2018 the us Private sector confidence remains high, though it appears to have peaked, and financing conditions remain loose despite the continuing tightening of monetary policy. Beyond the short-term fiscal stimulus effects, we expect long-term factors such as workforce ageing and slower productivity growth to dominate after 2020, leading to gdp growth of 1.6% in 20212025. September 15 th2018 will mark the 10-year anniversary of the collapse of the investment bank Lehman Brothers, an event widely accepted as the start of the Global Financial Crisis (GFC). © 2018 Euromonitor International 14 GLOBAL ECONOMIC FORECASTS Q3 2018 exports made a negative contribution to growth and the global trade picture has worsened, while consumption and investment continued to support growth. Despite the slowdown, private sector confidence remains high compared to the historical average, labour markets are continuing to improve and borrowing costs remain extremely low. General outlook The Eurozone economy has slowed down more than expected, with year-on-year growth of 2.3% in the first half of 2018, and preliminary estimates of even lower growth in the second quarter. Net the eurozone INDICATOR 2017 % 2018 (F) % 2019 (F) % 2020 (F) % 20212025 AVERAGE (F) % 2018 FORECAST CHANGE Percentage points 2019 FORECAST CHANGE Percentage points Real gdp growth 2.5 2.1 1.8 1.7 1.4 -0.2 -0.1 Inflation 1.5 1.6 1.7 1.7 1.9 0.1 0.1 ecb Refinancing Rate 0.0 0.0 0.0 0.4 1.4 0.0 -0.2© 2018 Euromonitor International 15 GLOBAL ECONOMIC FORECASTS Q3 2018 the eurozone The overall positive economic outlook has led the ECB to announce an end to its quantitative easing programme after December 2018, though it has also committed to maintaining its policy rates at their current level until the autumn of 2019. Eurozone real gdp is expected to grow by 2.1% in 2018 and by 1.8% in 2019. Beyond 2020, slow labour productivity growth and an ageing workforce are likely to reduce annual real gdp growth towards 1.4% in 20212025. © 2018 Euromonitor International 16 GLOBAL ECONOMIC FORECASTS Q3 2018 October 2018 has decreased. The probability of our baseline scenario, which assumes a final free trade agreement being reached in 2020, has dropped below 50%. General outlook In July 2018 the UK Government published the long-awaited Brexit white paper, which contains its proposals for the UKs future relationship with the EU. These include free trade for goods, a new arrangement for services, and a combined customs arrangement, in which the UK would apply the EUs tariffs for goods intended for the bloc and domestic tariffs for goods heading to the UK. The UK Government expects this would also help avoid a hard Irish border after leaving the EU. However, it remains doubtful whether the EU would agree to such proposals in their current form. The white paper also lacks support on the domestic front. Given the reservations for the UK Governments proposals, the likelihood of the EU withdrawal treaty being signed in the uk© 2018 Euromonitor International 17 GLOBAL ECONOMIC FORECASTS Q3 2018 the uk Following the Brexit process, Euromonitor has added EU without the UK to the list of available geographies. The new bloc would have a more pronounced unemployment rate, but would benefit from higher real gdp growth and lower inflation, as well as notably better consumer confidence prospects, as compared to the UK alone. Source: Euromonitor International from national statistics/Eurostat Key Macro Indicators in 2018 Unemployment Rate Real GDP Growth % 8 6 4 2 0 UK EU EU without UK Index -2 -1 0 1 2 UK EU EU without UK 2012 2013 2016 2017 2018 2014 2015 2019 1.2 0.3 1.4 Source: Euromonitor International from national statistics/Eurostat Note: Values above 0 indicate sentiment above long term average© 2018 Euromonitor International 18 GLOBAL ECONOMIC FORECASTS Q3 2018 japan General outlook Japans economy has grown at a slower pace in q1 2018, expanding by 1.0% year-on-year. Household expenditure was likely muted by temporary factors such as bad weather, while exports and investment were shaded by the uncertainty stemming from the US protectionist policies. As a result of a weaker-than-expected q1 performance and tensions in the foreign trade arena, we have downgraded our real gdp growth forecast to 1.1% in 2018, from 1.4% in our May report. The forecast for 2019 remains unchanged at 1.0%. Japan Real GDP Growth by Expenditure Component % 1.0 -3 -2 -1 0 1 2 3 2015 2016 2017 Stocks Investment Net exports Private consumption Public consumption Real GDP growth Source: Euromonitor International from national statistics© 2018 Euromonitor International 19 GLOBAL ECONOMIC FORECASTS Q3 2018 japan Japan Real Wage y-o-y Growth 2016 2017 2018 % Wages have increased over the last few months, even after counting out the seasonal bonuses 0.7 Contractual Earnings Total Earnings -2 -1 0 1 2 3 4 2.8 Consumer prices continue to lack any substantial support: inflation has been far away from the elusive government target, growing a meagre 0.7% in q2 2018. Under current conditions, we see the 2% target implausible to reach. Real wages have gained some strength over the last couple of months, even after counting out the seasonal bonuses usually handed out in June / July. Larger income, although seasonal, might give a bit of support to household spending and price growth in the second half of 2018. Source: Euromonitor International from national statistics© 2018 Euromonitor International 20 GLOBAL ECONOMIC FORECASTS Q3 2018 slowdown in investment. After 2020, economic growth is expected to decline to an annual rate of 5.3% in 20212025, though ongoing economic reba