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CIO Insights - August 2016
Macroeconomics
5
MACROECONOMICS
The impact of uncertainty
Uncertainty regarding the Brexit
referendum result is likely to burden
economic development in the
UK - and the Eurozone - and lead
investors and consumers to spend
less. We expect a deceleration of
economic growth in the UK to 0.8%
next year, down from an expected
1.3%in 2016. This should lead
to declining imports. As the UK's
most important trading partner, the
Eurozone is likely to be materially
affected by this and we have
trimmed our Eurozone growth
forecast to 1.2% in 2017 down
from an expected 1.4% in 2016.
Countries with less extensive trading
links to the UK should be much less
affected. Our U.S. growth forecast
of 2% for 2017 remains unchanged
from pre-referendum levels, as
do our forecasts for Japan and
emerging markets.
It's our opinion that central banks
have acknowledged the result of
the Brexit vote, and may alter policy
to cushion any broader economic
repercussions. The U.S. Federal
Reserve (Fed) is likely to raise
official rates only moderately. At
most, we would expect two rises
of 25 basis points each by mid-
2017. Discussions whether the
European Central Bank (ECB) will
Key growth forecasts
China a
Eurozone
Japan
•
US
2016 GDP
CIO forecast
for 2016
6.9%
6.3%
1.7%
- 1.4%
0.5%
♦ 0.5%
2.0%
- 1.8%
start tapering QE in spring 2017 have
been temporarily muted. The Bank
of England (BoE) has once again
joined the club of central banks
pursuing quantitative easing (QE)
policies and has cut its base rate by
0.25%; further policy interventions
are possible. The Bank of Japan
(BOJ) is likely to extend its asset
purchase program and to cut rates
further, but the Brexit vote is not to
blame. Rather, Japan's central bank
is worried about meager economic
growth and near-zero inflation rates.
Emerging markets (EM) might be
indirect beneficiaries of current
developments, as EM governments
and corporations have used the
low interest-rate environment
and significantly extended their
debt since 2007. Rising debt has
increased the dependency on the
monetary policies of advanced
economies, particularly the United
States. The postponement of U.S.
rate hikes has therefore to some
extent alleviated their situation.
In the last few years, China's political
leadership has focused on credit-
financed investment to stimulate the
economy. Several sectors therefore
experienced over-capacity and
rising non-performing loans. This
has increased the pressure on the
government in Beijing to launch
structural reforms. The example
of India shows that economic
restructuring and market-economy
reforms can be worthwhile. For
2017, we expect Indian growth to
rise by 0.3 percentage points to
7.8%. By contrast, Chinese growth is
forecast to decelerate from 6.3%in
2016 to 6% in 2017.
Sources: Deutsche Bank Wealth Management. Data as of August 15. 2016.
Past performance is not indicative of future returns. Readers should refer to the explanatory notes at the end of this document.
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