Global economic forecast January 17th 2011

A new round of fiscal stimulus, together with continued QE, will guard against a marked slowdown in growth in 2011

Persistently high unemployment is a serious concern, but firms should be more willing to hire this year

The deleveraging process still has several years to run and will weigh on medium-term economic growth.

A large stock of houses on the market or coming in the near future will exert renewed downward pressure on prices

Europe’s economy is recovering but fiscal austerity will hold back growth

Unemployment has risen only moderately owing to wage subsidies, but employment recovery will be slow

Greece is likely to need a re-structuring of its government debt despite a massive rescue package, and Ireland could face the same fate

Portugal will need a bailout in 2011 and Spain could be tested

Export performance in Japan will deteriorate in 2011, reflecting a deceleration of Chinese growth and continued yen strength

The urgent need for fiscal consolidation greatly limits room for further fiscal stimulus beyond measures already approved

Weak domestic demand is putting downward pressure on Japanese prices again, so that deflation continues

Chinese growth has been supported by massive stimulus, but this has aggravated existing imbalances. Tighter policy will be needed to tame inflation.

India is growing strongly on the back of robust domestic demand, but fiscal pressures remain

Brazil’s performance has been driven by Chinese demand for commodities and by solid domestic consumption

Russia’s recovery is supported by the rise in oil prices over the past year

Oil consumption will continue to grow in 2011, led by the developing world and the US. Consumption will continue to fall in the EU

Output restraint and significant spare capacity in OPEC producers suggests ample supply. However, any escalation in geopolitical tensions could disrupt our supply forecasts

Loose global monetary conditions and investors’ search for return will support prices

Fiscal stimulus in China and restocking in the OECD drove demand in 2010, but will fade in 2011

Rising emerging market incomes and urbanisation will underpin medium-term demand growth

Years of underinvestment, particularly in agriculture, will push up prices

Gold prices have been strong, fuelled by vibrant investor demand, while fundamentals remain weak. Persistent economic uncertainty will support prices in 2011

The Federal Reserve will not raise its policy rate until the third quarter of 2012

The ECB has stepped up purchases of bonds of struggling governments; the central bank is also now unlikely to raise rates until the third quarter of 2012

Japanese policy rates will be held at emergency levels until late 2012

The European fiscal crisis raises new concerns for banking sector stability

Expectations of earlier rate hikes in the US and lingering concerns about the fragility of the euro zone will support the US$ against the euro over the longer term

The yen will be supported by Japanese institutional investors’ home bias but a declining domestic savings rate will soon make it vulnerable.

Emerging market currencies will continue to be supported by wide interest rate and growth differentials with OECD economies

- Major sovereigns default as public debt surges

- Tensions over currency manipulation lead to a rise in protectionism

- New asset bubbles burst, creating renewed financial turbulence

- Developed economies fall into a deflationary spiral

+ Improved confidence prompts a stronger rebound in demand

16

16

16

15

12

- The global economy experiences a double-dip recession

- The Chinese economy crashes

- The euro zone breaks up

- Economic upheaval leads to widespread social and political unrest

- Emerging-market inflation surges, forcing fierce policy tightening

10

10

10

9

9