The acceleration of global growth receives further support
The world economy's rate of growth will speed up in 2016 to 3.4% (3.1% in 2015). In the main developed countries the business indicators published for 2016 Q1 have reinforced the scenario of stabilisation in growth, as was expected, whereas the wave of negative surprises has eased in the bloc of emerging countries although the delicate situation of some countries, such as Brazil, is still a cause for concern.
The recovery in world growth is supported by various factors in March, particularly the easing of the risk-off episode both in developed countries and in the emerging economies. Lower risk aversion has boosted flows of capital towards the emerging countries which have picked up moderately after several months of sharp drops. Moreover, a more accommodative monetary environment thanks to the measures announced by the ECB and communications from the Fed and Bank of England also favour the expected scenario of a recovery. Lastly the gradual rise in oil prices will relieve financial pressures on several emerging countries whose weakness was being closely watched.
EMERGING ECONOMIES
China sets a more moderate economic growth target. For the first time the Chinese government has employed a range to set the growth target for GDP in 2016, placing it between 6.5% and 7.0%. The forecast by CaixaBank Research is towards the lower end of this range, a scenario that appears to be the most plausible given the downward trend in most activity indicators. For example exports fell by a huge 25.4% year-on-year in February, a sharper drop than expected although this was largely the result of calendar effects caused by the change in date for the Chinese New Year. Imports also continued to fall in nominal terms (–13.8% year-on-year in February) even without taking into account the component of energy and metals, hard hit by falling commodity prices. This slump reflects a slowdown in domestic demand in the last few months. Inflation stood at 2.3% in February, 0.5 pps above the figure for January and helped by a strong increase in the food component. Nonetheless this figure is still below the target of 3%, giving monetary authorities margin to maintain expansionary measures (the central bank cut the cash reserve ratio at the beginning of March).
Brazil's worsening recession is confirmed. GDP fell by 5.9% year-on-year in 2015 Q4 (–3.8% for the year as a whole and –4.5% in 2015 Q3), a worse figure than expected. This deterioration has mainly been the consequence of a slump in domestic demand and in particular in investment. Moreover the immediate outlook is still negative and the economy is expected to continue its decline in 2016. The continuation of large macroeconomic imbalances (the public deficit went up to 8.2% in 2015 and inflation stood at 10.4% in February) and the institutional impasse faced by the country are complicating the scenario. Potential accusations of corruption against the former president Lula and the uncertainty surrounding the impeachment of Rousseff, whose probability has increased slightly after the party allied to the president left the coalition, are particularly cause for concern. Given the bad end to 2015, the weak start by activity in 2016 and increased political uncertainty, we have revised downwards our growth forecast for this year from –2.8% to –3.4%.
The Turkish economy speeded up in 2015. Turkey's GDP grew by 5.7% year-on-year in 2015 Q4, much more than expected. Annual growth was 4.0% (3.1% in 2014) thanks to dynamic domestic demand. In spite of this acceleration, however, the large macroeconomic imbalances still suffered by the country and sources of political uncertainty, both internal and external, suggest that activity will slow down in 2016.
Oil prices are starting to recover gradually, going above 40 dollars per Brent barrel during most of March. One of the factors behind this upward movement is the confirmation of a meeting between the OPEC countries planned for mid- April, when they will discuss freezing the supply of crude oil. Although volatility will probably remain high, over the coming months we expect the recovery in the price of oil to consolidate over the coming months (55 dollars by the end of 2016, 72 by December 2017), thanks to the recovery in world growth and to the reduction in investment in the main oil-producing countries.
UNITED STATES
The US economy keeps up a good rate of growth. According to the third estimate by the Bureau of Economic Analysis, US GDP grew more than initially estimated in 2015 Q4 (by 0.3% quarter-on-quarter compared with 0.2%), boosted by more solid growth in private consumption. More recent indicators also point to growth in 2016 Q1 being in line with expectations (0.5% quarter-on-quarter) although it is worrying that, in the last few years, first quarter GDP growth has tended to be disappointing due to the figures being badly adjusted for seasonal biases. Given this situation we have maintained our GDP growth forecasts for 2016 (2.1%) and 2017 (2.2%). These are significant growth figures although slightly more moderate than the 2.4% recorded in 2015.
The solid labour market will support growth in 2016. 242,000 jobs were created in February, passing the threshold of 200,000 and above the figure for January. Specifically, since the start of the recovery, the US economy has created more than 12 million jobs, a figure far in excess of the 8 million jobs that were lost between 2008 and 2010. Similarly, in February unemployment remained at the very low figure of 4.9% and the ratio of unemployed people to new jobs has been below the pre-crisis average for months now, suggesting a smaller slack in the labour market.
This improvement in the labour market will also encourage wage rises. In February, general inflation in the US stood at 1.0%, 0.4 pps below January's figure due to a larger fall in energy prices (–12.7% year-on-year) than expected. However, over the coming months inflation will pick up notably (to 2.5% by 2017 Q1) partly due to the recovery in oil prices. The solidity of core inflation (2.3% in February) also supports this scenario, as well as the strong improvement in the labour market which will heighten pressure on wages. An intense recovery in the inflation rate could cause some confusion for the Fed's normalisation strategy as, for the moment, its message is very much focused on the current low rate of inflation. In its March communication the Federal Open Market Committee stressed that inflation is still below its long-term target. The most likely scenario is still one of a second interest rate hike (from 0.50% to 0.75%) in September and medium to long term interest rates (interbank and public debt) gradually rising. However, the expected increase in inflation in the second half of 2016 and in 2017 might speed up the recovery in interest rates in the long tranche of the curve.
JAPAN
Japan, the only advanced economy to decline in 2015 Q4. The GDP figure for 2015 Q4 was revised upwards by 0.1 pps but it nevertheless fell by 0.3% compared with the previous quarter. This figure, which does not alter the growth figure of 0.5% for the whole of 2015, continues to reflect weak private consumption which has continued in 2016 Q1: this fell by 3.1% in January (according to the survey of households) while consumer confidence lost 2.4 points in February. The good news is provided by the foreign sector. Japan achieved a trade surplus in February, boosted by sales to China and the United States, two of its main markets. In particular, exports to China grew by 5.2% year-on-year in nominal terms after falling by 17.4% the previous month, a considerable increase although partly due to the change in dates for the Chinese New Year.
Inflation is still at zero, reflecting weak domestic demand. In February the CPI without food but with energy (the benchmark used by the Bank of Japan) posted a zero year- on-year rise, repeating January's figure. However the core CPI (without energy or foods) advanced by 0.8%, 0.1 pps more than in January. Nonetheless we expect inflation to remain close to zero over the coming months. Given this situation, the Bank of Japan will probably increase its rate of asset purchases in 2016 Q2.
