Global Growth Outlook Steady Despite Oil Fall, Stimulus Burst
London/Bengaluru. A collapse in oil prices that gave a windfall to the world’s energy consumers and a flurry of policy easing from central banks might have been expected to brighten the outlook for global economic growth.
But Reuters polls of more than 250 economists across Europe and North America show only modest upgrades to growth forecasts and a reluctance to relinquish a depressed inflation view, despite the rush of rate cuts and central bank cash that most respondents believe is far from over.
The biggest policy change, sovereign bond buying by the European Central Bank that started in March, has lit a fire under European stock markets and government bonds but has boosted the economic growth outlook only a little.
Germany’s DAX index has rallied more than 20 percent since the start of the year alongside a plummeting euro that has given way to an ascendant dollar. Most of Germany’s sovereign bonds are so expensive they are now paying a negative yield.
And yet the expected quarterly growth rate for the euro zone has only moved up to a modest 0.4 percent pace across the forecast horizon – certainly better than prospects for no growth but not enough to make sizable reductions in high unemployment.
The outlook for inflation, which the ECB wants to get back from near zero to its target of just below 2 percent, is more benign for 2015 than it was at the start of the year before QE even began. And the specter of Greece leaving the euro zone is hovering.
“The world economy is looking increasingly surreal, so much so that policymakers are really struggling to deliver the economic outcomes they’d ideally like to see,” noted Stephen King, chief global economist at HSBC.
The consensus for global growth this year has fallen to 3.4 percent from 3.7 percent polled back in July, around the start of the collapse in oil prices that was meant to give a boost to consumer spending even while hurting major oil exporters.
The outlook for 2016 has only risen by 0.2 percentage points over the same roughly nine-month period to 3.7 percent.
In the meantime, the dollar has soared over 20 percent against a basket of currencies. Economists singled it out as the biggest threat to growth this year in the United States, which has been leading the global expansion.
The Federal Reserve appears strongly inclined to raise rates from the zero bound this year, but the latest poll shows that the expected start date keeps slipping as does how high rates are likely to climb over the coming year.
That is based on a series of disappointing data since the start of the year, a pattern that has repeated itself several times in the long recovery back from the financial crisis and has left many analysts and investors skeptical.
“While the commitment to keep the monetary sluice gates open is alive and well in many parts of both the developed and the emerging world, the Federal Reserve is, in effect, the elephant in the room,” wrote King.
“Even though global growth is weak, world trade growth is slow and deflationary pressures abound, the Fed is much more focused on domestic US economic developments.”
So far at least, inflation is not a problem for the Fed.
The latest Reuters poll forecast the price index for consumer spending tracked by the Federal Open Market Committee will be benign this year before rising towards the central bank’s 2 percent target next year.
The same goes for Britain, where the consensus for a first interest rate hike from a record low near zero has slipped to the first quarter of next year — and even then it’s a close call.
Much will depend on how much China, the world’s second largest economy, is set to slow this year. It, too, has had a spectacular stock market rally based on hopes that more stimulus from the central bank is ahead.
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