20160624-美银美林-Global_Economic_Weekly_Separation_anxiety_27页_1mb

Summary of the Document

Core Content

This document provides an analysis of the economic and financial implications of the UK's decision to leave the European Union (Brexit), with a focus on global and regional impacts. It outlines the expected effects on GDP growth, central bank responses, and market reactions, while also touching on other economic regions like the US, Emerging EMEA, Latin America, and Australia. The report emphasizes the role of uncertainty in shaping economic outcomes and highlights the limitations of current policy tools in addressing these challenges.

Main Views

• Global Impact of Brexit: Brexit is expected to trigger a UK recession, a slowdown in Europe, and a small drop in growth elsewhere. The shock is significant, with risks skewed toward the downside.
• Central Bank Responses: Central banks are likely to respond with policy rate cuts and quantitative easing (QE), particularly in the UK, and the Fed may delay its next rate hike to December.
• Uncertainty as a Drag: The document suggests that uncertainty has been a persistent issue in the current economic cycle, affecting growth and investment. The US and Europe have been particularly vulnerable to these confidence shocks.
• UK Economic Outlook: The UK is expected to suffer the most, with a 0.2pp cut in GDP growth forecast for the next six quarters. A recession is anticipated, leading to a significant drop in growth for 2017.
• Euro Area Vulnerability: The Euro area and global economy will also face substantial shocks. The ECB may need to implement more aggressive monetary policies, including further QE, to counteract the impact.
• Emerging EMEA Outlook: There is a positive outlook for FX in Poland and local rates in Russia and South Africa, though the region remains commodity-driven with limited reforms.
• Latin America: The document notes that Brazil's inflation report will be key, while Mexico and Colombia are expected to maintain or adjust their monetary policies based on economic indicators.
• Australia: Labour cost pressures are expected to remain subdued due to spare capacity, but increased participation could lead to a rise in the unemployment rate.

Key Information

Global Overview

• The UK vote is likely to cause a recession in the UK, a slowdown in Europe, and a small drop in growth elsewhere.
• Central banks will respond with policy rate cuts and QE, particularly in the UK and the Fed may delay its next rate hike.
• Risks are skewed to the downside, with uncertainty affecting growth and confidence across the globe.

United States

• Brexit is a significant confidence shock, leading to a 0.2pp cut in GDP growth for the next six quarters.
• The Fed is expected to delay its next rate hike to December and may reduce the number of hikes in 2017 and 2018.
• Uncertainty has been a major theme throughout the recovery, with the US economy becoming more sensitive to global risks.

Europe

• Brexit is expected to cause a significant shock to the Euro area and global economy, with the UK being the main victim.
• The ECB may need to implement further QE to counteract the shock, though monetary transmission remains hampered.
• The document suggests that fiscal stimulus will be more effective in supporting growth, though political constraints may limit such measures.

Emerging EMEA

• Poland has seen material improvements in trade competitiveness, but its currency has underperformed.
• Turkey is also showing improvement, while Russia and South Africa remain commodity-driven with limited reform.

Latin America

• Brazil's 2Q inflation report is a key event.
• Mexico is expected to remain on hold despite currency depreciation.
• Colombia's peace process is expected to be sealed in the second half of July.
• BanRep raised the policy rate by 25bps.

Australia

• Labour cost pressures are likely to remain low due to spare capacity.
• If participation increases, the unemployment rate may rise to 6.3%.
• The document suggests that slower wage growth may be responsible for the subdued inflation outlook.

Economic Calendar Highlights

• Next Week's Key Events: Global PMI data, US personal and construction spending reports, UK lending data, Euro Area inflation, and central bank policy decisions in Mexico and Taiwan.
• Important Data Points: Euro area M3 Money Supply, US GDP, Consumer Confidence, UK GDP, and Brazil's Industrial Production.

Policy and Forecast Adjustments

• The document highlights the need for policy responses beyond market disruption, particularly in the Euro area.
• It suggests that the ECB may need to increase QE beyond March 2017, and that the Fed may reduce its hiking cycle to only two hikes in 2018.
• The Economic Policy Uncertainty (EPU) index is mentioned as a useful tool for gauging the impact of uncertainty on growth.

Conclusion

The report underscores the profound and ongoing effects of Brexit on global and regional economies, emphasizing the role of uncertainty in shaping economic outcomes. It suggests that while central banks may respond with stimulus, the true challenge lies in addressing the underlying confidence issues and the long-term implications of the UK's exit from the EU.