Investment Desk Bulletin

22 March 2016

After the storm

IDB 22 03 16

By Pau Morilla-Giner

Financial markets have made gains for the past 5 weeks and recovered much of the ground lost in the opening weeks of the year. Investors have been comforted by a more stable Chinese currency, a recovery in the price of oil and policy support from the Bank of Japan, European Central Bank and US Federal Reserve. In the calm after the storm, we revisit the outlook for key economies and conclude that for now we should expect a period of softer global growth, but not a recession.

- Forecast global GDP growth of 2.3% this year would be the weakest since 2009, but only slightly lower than the 2.4% experienced last year.

- In the US consumer spending and housing data has firmed, offsetting the weakness from net trade and higher inventories levels. The probability of a rate hike in June has increased as risk market volatility has receded.

- Eurozone growth expectations have been revised lower on the back of tentative investment and struggling trade, but additional ECB support should ensure that credit conditions remain supportive.

- Macro data in China has stabilised, thanks to policy easing. A hard landing for growth is not expected, but the slowdown still represents the most significant drag to global growth this year.

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