Positive economic outlook but divergence continues

The global economy has continued to grow at a steady but underwhelming pace through 2015.  What are the expectations for 2016? 

14th December 2015

The global economy has continued to grow at a steady but underwhelming pace through 2015, with stronger recoveries in the United States and Euro area offsetting slower growth in Asia. 

Continue to the other two articles in this edition of Global Outlook.

Risk and return in real estate: Lessons from the listed market.

Listed real estate data are a rich source of information. But how can it be use to analyse risk and return in the broader real estate market? Brian Biggs, Research Analyst, Grosvenor Group investigates in more detail. Click here to read more.

European urban retail investment has been increasing, what is driving investors' interest? 

Urban retail is a sector that is expected to fare well in Europe over the long term. In this month's 'Questions & Answers', Simon Chinn, Research Analyst, Grosvenor Group, explains why. Click here to read more. 

Going forward, we expect to see a further slight improvement in 2016, with aggregate world real GDP forecast to accelerate to around 2.7% p.a. from 2.4% in 2015. However, the underlying divergence between advanced and emerging economies is likely to persist.

In the US, the Fed continues to deliberate the appropriate point to start raising rates. While most indicators of domestic activity remain robust, the appreciation of the US dollar is starting to have a noticeable impact on manufacturing exports. Nonetheless, with the unemployment rate now back at 5.0% and with core inflation expected to start trending higher (from around 1.4% y-o-y in Q3), it seems likely that the Fed will raise rates by 25bps in December, with a further 50-100bps to follow in 2016. 

In the UK, the case for raising rates remains less urgent, as the pace of growth has slowed in recent quarters. Real GDP growth (excluding oil & gas) rose by a lacklustre 0.4% q-o-q in Q3, marking the third successive quarter of below-trend growth. As a result, annual real GDP (ex-energy) is likely to rise by just 2.1% in 2015, the slowest pace of growth since 2012.

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Still, with wage growth now at a six year high, it seems likely that the Bank of England will also look to raise interest rates at some point in the second half of 2016. In Continental Europe, the recovery remains on track, but is still highly dependent on ECB policy support to sustain momentum. Eurozone GDP growth rose by a moderate 0.3% q-o-q in Q3, with domestic demand holding up relatively well in most countries. Encouragingly unemployment has continued to decline in recent months. With inflation remaining below target, the combination of stronger jobs growth and rising real incomes is positive for a continued recovery in consumer spending, which is expected to play a more meaningful role in sustaining the euro zone’s modest upturn.

In China, sluggish real activity and rising deflationary pressures suggest that the government will need to escalate policy initiatives to support growth, with the likelihood of another 25bp interest rate cut before the New Year. Though the boost from infrastructure-related policy measures is taking longer than expected to come through, the recent stimulus measures for the auto industry appear to be helping growth. Even with more stimulus, real GDP growth in China is likely to continue to slow over the next two years, from around 6.9% in 2015, to around 6.5%p.a. But by far the most significant development in China over the past month was the announcement by the IMF that it will now include the RMB in its Special Drawing Right (SDR) basket, with an initial weighting of 10.9%. The decision was a clear vote of confidence in China’s financial reforms and is another step toward the internationalisation of the Chinese currency. This move will also spur more financial reforms and pave the way for further capital market liberalisation and greater ability for Chinese investors to access global markets, including global real estate markets.
 

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