Global outlook brightens as Brexit fears fade: IHS

IHS experts observed that the impact of Brexit to the rest of Europe would be more limited.

Despite heightened political uncertainty, the global outlook has brightened a little with early evidence suggesting that the impact of Brexit on the rest of Europe would be less severe than previously estimated,
"While the full effects of Brexit have yet to be felt and the negative rhetoric of the US presidential election escalates, recent economic news has been a little more upbeat," said IHS Global Insight's World Flash for August.
IHS Markit chief economist Nariman Behravesh and IHS Global Insight senior research director Sara Johnson said in their forecast that Japan's large fiscal stimulus package would provide a temporary (although small) boost to growth.
"Finally, recessions in hard-hit emerging markets, such as Brazil and Russia, are abating. The recent improvement in the JPMorgan Global PMI, compiled by Markit, and the remarkable resilience of global financial markets reflect these positive trends."
HIS relatively bullish forecast for the world economy is in sharp contrast with the recent International Monetary Fund's observation. The IMF has cut its forecasts for global economic growth this year and next as the unexpected UK vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence.
IHS report noted that in the world's largest economy, once again GDP (gross domestic product) data are showing weakness, while employment data through July are indicating strength. Second-quarter real GDP advanced at a sluggish 1.2 per cent annual rate. "The bright spot was real consumer spending, which grew at a 4.2 per cent annual rate. An inventory correction subtracted 1.2 percentage points from real GDP growth. With the drag from inventories ending, economic growth is expected to pick up to a three per cent rate in the third quarter. Consumer spending and homebuilding will be key drivers of US growth."
IHS experts observed that while the UK economy would probably suffer a mild recession, the damage to the rest of Europe would be more limited. With forward-looking indicators flashing warning signs, IHS Global Insight predicts that UK real GDP will stagnate in the third quarter and contract slightly in the fourth quarter and early 2017. Meanwhile, eurozone businesses seem to have shrugged off the uncertainty resulting from Brexit. Markit PMIs point to continued, albeit sluggish, expansion. Forecasts of 2017 growth have been revised upward for Germany and Spain, where the impacts of Brexit are now expected to be milder than initially estimated.
IHS said growth in China, the world's second largest economy, is set to slow in the second half. Both nominal and real measures of growth in industrial output, fixed-asset investment, and retail sales weakened in July. "This confirms expectations that risk remains overwhelmingly on the downside in China. Growth over the last few years has become increasingly reliant on state investment. While China continues to roll out a steady pipeline of infrastructure investments, the state is unable to indefinitely prop up investment singlehandedly," it said.
In other large emerging markets, prospects look a little brighter-or at least a little less dark, the report said.
"Brazilian data confirm recessionary pressures are easing. Industrial production recorded its fourth consecutive monthly expansion in June but was still down 5.9 per cent year on year (y/y). Markit's PMIs are also indicating that contractionary forces are abating. Russia's real GDP declined 0.6 per cent y/y in the second quarter, compared with a decline of 1.2 per cent y/y in the first quarter of 2016 and a 3.7 per cent drop in 2015 as a whole. Real GDP forecasts for both countries have been revised upward," said the report.
- issacjohn@khaleejtimes.com

Issac John

issacjohn@khaleejtimes.com