20180618-兴业金融证券-ECONOMIC_AND_FINANCIAL_MARKET_OUTLOOK_Global_economy_is_still_on_a_positive_path......but_mind_the_growing_gap_9页_900kb

Economic and Financial Market Outlook - June 2018

Core Content

The June 2018 economic and financial market outlook highlights the global economy's continued positive trajectory, though with growing concerns over the widening gap between advanced and emerging economies. While the global economy is expected to grow at 3.9% in 2018, risks such as US protectionist policies, Italy's political instability, and emerging-market debt concerns are noted as potential threats to growth momentum.

Main Points

Global Economic Outlook

• Growth Prospects: The global economy is on a positive growth path, with a forecasted expansion of 3.9% in 2018.
• Trade Dynamics: Despite a slowdown in March, trade flows remained strong in the first quarter, but the recent US tariffs could impact future trade volumes.
• Inflation Trends: Sustained growth has reduced excess capacity, allowing inflation to approach central banks' targets.
• Central Bank Actions: Central banks in Canada, the US, UK, and the Euro area are expected to increase interest rates as inflation rises and the economy approaches full capacity.

US Economic Outlook

• Growth Forecast: The US economy is expected to grow at an average of 2.9% in 2018, surpassing 2017's 2.3%.
• Government Spending: A $100 billion increase in government expenditures will contribute to growth.
• Business Investment: Business investment is expected to rise significantly, supported by tax cuts and increased demand.
• Labour Market: The US labour market is strong, with the unemployment rate at 3.8% in May, and wage growth approaching 3%.
• Interest Rates: The Federal Reserve is expected to raise the fed funds target by 25 basis points each quarter in 2018 and 2019, aiming for a mildly restrictive stance by late 2019.
• Housing Market: Consumer spending and housing recovery are expected to continue, though with a slowdown in the pace of growth.

Canadian Economic Outlook

• Growth Forecast: Canada is expected to grow at a slightly faster pace in the second half of 2018, with an average of 2.0% growth.
• Business Investment: Business investment is trending upwards, with a 10.9% annualized increase in Q1 2018, despite a slowdown in the housing market.
• Housing Market: The housing market is cooling, with home sales expected to decline by 4.3% in 2018 and prices rising modestly by 1.8%.
• Interest Rates: The Bank of Canada is expected to raise the overnight rate by 50 basis points in the second half of 2018 and an additional 50 basis points in 2019.
• Trade Tensions: The US's imposition of tariffs on Canadian goods and retaliatory measures from Canada could create uncertainty for trade-dependent sectors.
• Inflation: Underlying inflation is at 2%, with energy prices expected to push headline inflation to 3% by mid-2018.

Key Information

Risks and Uncertainties

• Protectionist Policies: The US's aggressive tariff policies and trade tensions with allies like Canada and Mexico pose a risk to global trade and economic growth.
• Policy Uncertainty: The lack of progress on NAFTA and the possibility of more industries facing tariffs could slow growth.
• Emerging-Market Debt: Concerns over emerging-market debt are a significant risk factor for global economic stability.

Economic Forecast Highlights

• Canada:
  • Real GDP growth is expected to be 2.0% in 2018, with a slowdown in the housing market.
  • Business investment is forecasted to grow at 10.9% in Q1 2018 and 2.8% in 2018.
  • The Bank of Canada is expected to raise interest rates in 2018 and 2019.
• US:
  • Real GDP growth is forecasted at 2.9% in 2018, with a strong rebound in Q2.
  • Business investment is expected to increase significantly, with a 7% jump anticipated due to tax cuts.
  • The Fed is projected to increase the fed funds rate by 25 basis points each quarter, leading to a mildly restrictive stance by late 2019.

Financial Market Trends

• Interest Rates: Both Canada and the US are expected to see a gradual increase in interest rates over 2018 and 2019.
• Yield Curves: The yield curve for both countries is expected to flatten or invert, indicating potential economic slowdowns.
• Currency Outlook: The Canadian dollar faces conflicting pressures from oil prices and interest rate differentials with the US, with limited movement expected in the short term.

Summary of Key Indicators

US

• Real GDP Growth: Expected to average 2.9% in 2018.
• Unemployment Rate: Projected to fall to 3.8% in 2018.
• Inflation: Headline CPI is expected to rise to 2.7% in 2018, with CPI excluding food and energy at 2.3%.
• Interest Rates: Fed funds rate is forecasted to increase by 25 bps each quarter, reaching 3.5% by 2019.

Canada

• Real GDP Growth: Expected to be 2.0% in 2018.
• Unemployment Rate: Projected to remain around 5.8%.
• Inflation: Underlying inflation is at 2%, with headline inflation expected to rise to 3% by mid-2018.
• Interest Rates: Overnight rate is forecasted to rise by 50 bps in the second half of 2018 and an additional 50 bps in 2019.

Conclusion

The global economy remains on a positive growth path, with the US and Canada leading the way. However, the risks posed by protectionist measures, political instability, and emerging-market debt must be closely monitored. Central banks are expected to scale back stimulus, with interest rates gradually increasing in both countries. While the US economy is projected to outpace 2017's growth, Canada's growth is expected to be slightly faster than the previous year, with a cooling housing market and potential trade tensions as key challenges.