Master Template1 Global forecasting service Economic forecast summary – June

US employers created an average of 208,000 jobs a month between November and April, 50% more than in the previous six months. Fiscal tightening may yet dull the recovery, but US growth is still set to accelerate in the second half of the year. As it stands, public spending cuts are going ahead as planned, since neither party was able to convince the other to compromise. We maintain our GDP growth forecast for 2013 at 2.1%, down slightly from an estimated 2.2% in We haved raised our 2014 growth forecast to 2.5%.

Aggregate unemployment in the currency area is above 12%, and GDP will contract for a second year in The European Central Bank cut its main interest rate by a quarter percentage point in early May as economies sputtered across the euro zone. The interest-rate cut will have only a minimal effect on growth in the hardest hit countries, where funding costs for companies and households are not expected to fall much. After a period of post-election uncertainty in Italy a broad coalition government was formed in April.

We have edged our 2013 growth forecast to 1.2%. Demand will be boosted by the expansionary monetary and fiscal policies of Shinzo Abe. The yen has continued to slide. A weaker yen will provide some relief to Japan’s exporters. It will also contribute to raising the annual inflation rate to around 1.3% between 2014 and Over the long term the ageing of the population, combined with disorderly public finances, will make it difficult for policymakers to engineer a self- sustaining recovery in domestic demand. The consumption tax rate is scheduled to rise from 5% at present to 8% in April 2014 and then to 10% in October 2015.

Following a weak first quarter, we have further reduced our 2013 GDP forecast for China to 7.9% from 8%, after a larger cut from 8.4% last month. The outlook should improve in the coming months, but China has now embarked on a permanently slower growth path as the economy matures and investment declines. We expect India’s growth to pick up in 2013 to 6.5%, after growth of just 3.3% in Following a slow start to 2013, we have cut our 2013 growth forecast for Russia to 2.8%.

Oil consumption growth in 2013 is expected to be a subdued 1.2% reflecting the slowdown in China’s growth and the weak euro zone economies. Overall, consumption growth will average around 1.6% a year in , led by the developing world. Geopolitical risks continue to weigh on the supply picture, particularly the tensions between the West and Iran. Still weak demand growth and ample supply will constrain prices in 2013, assuming no unforeseen disruptions to supply or heightened political risk.

Demand will remain relatively subdued in 2013, constrained by weak OECD growth and only a modest pick up in China’s consumption Despite somewhat slower growth in non-OECD economies, rising incomes and ongoing urbanisation will underpin medium-term demand growth in industrial raw materials Grains and soybeans prices are expected to weaken in 2013 on improved supply prospects. Nominal commodity prices will remain historically high in , but prices will ease in real terms

The new governor of the Bank of Japan has announced a massive expansion of QE, with plans to double the monetary base by The Fed’s current monetary stimulus, a third round of QE, worth US$85bn in monthly bond purchases, is open- ended and will last until at least The ECB cut its refinancing rate by 25 basis points to 0.5% in May. South Korea, Australia, Poland, India and Denmark have all cut rates in recent weeks. Brazil has embarked on a monetary tightening cycle.

A protracted recession and concerns about a resurgence of the debt crisis will remain potential sources of pressure on the euro. The relative outperformance of the US is supporting the dollar, despite headwinds from loose monetary policy, fiscal tightening and a large external funding requirement. Japanese macroeconomic policy will keep the Yen weak. EM currencies should be supported over the medium term by positive growth and interest rate differentials with OECD economies.

- One or more countries leave the euro zone - Tensions over currency manipulation lead to protectionism - The global economy falls into recession + A sustained decline in oil prices provides a global economic fillip - Tensions over disputed islands rupture Sino-Japanese ties

- Social and political disorder undermine stability in China - US economy stumbles in the wake of a wave of fiscal tightening - Economic upheaval leads to widespread social and political unrest - An attack on Iran results in an oil price shock + Co-ordinated monetary stimulus kick-starts a global recovery

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