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Macroeconomic and financial forecasts - April 2017


  • United States: the recovery remains solid and is enabling the labour market to consistently improve. Wage growth remains modest and core inflation is still below the Fed’s target. Uncertainty over the US budget and trade policies remains. The White House has announced that it would present Congress with a full-blown budget in early May. From a macroeconomic standpoint, the bias is to the upside (growth, inflation). However, certain measures implemented by the new administration may have negative medium-to-long-term effects (inflation, protectionism) or even cause a turnaround in the cycle earlier than expected.
  • Japan: investment rebounded in Q4, reversing the trend seen in the first three quarters of 2016. The BoJ’s quarterly Tankan index indicates solid growth in Q1. Additionally, fiscal policy remains a key growth driver. The BoJ’s policy is enabling accommodative monetary conditions to remain in place.
  • Eurozone: the recovery is strengthening. Sentiment is at its strongest level since 2011, indicating that the economy strengthened in Q1 with monetary conditions remaining accommodative despite the rise in interest rates. However, political risks (France, Germany and Italy) remain the region’s weak link. Keep watching.
  • Brazil: Q4’s GDP figure came out at -2.5% yoy, compared to -2.9% in Q3. Brazil’s economy was hit by another major recession in 2016 (-3.4%). Growth carryover for 2017 remains substantially negative (-1.1%). As such, we continue to forecast a 0.5% recession in 2017.
  • Russia: Q4 GDP was positive at +0.3% yoy. Overall, in 2016, the country suffered a 0.2% recession, which was less severe than in our scenario (-0.7%). We should point out that the Russian statistics institute revised its GDP figures. As such, in 2015, the recession would have been only 2.8% compared to 3.7% previously estimated. We are maintaining our scenario of a return to positive growth of +1% for 2017.





  • FED: the Fed raised the fed funds target to 0.75-1.00% in March. The Fed should hike two other times in 2017. The issue of the normalization of the balance sheet is now clearly on the table.
  • ECB: the ECB extended its QE until December 2017 at a reduced pace (€60bn/ month). Few changes have to be expected until an acceleration of the core inflation is not observed. 


  • BoJ: she will stick to its Yield Curve Control (YCC) policy and should not change its rate targets.
  • BoE: the BoE will not hike its rate if the economic situation worsens.




  • United States: in the short run, the rise of long-term yields will be slowed by the easing of inflation base effects, the fact that hard economic data are not confirming the substantial expectations of surveys and the doubts about the ability of the new administration to implement stimulus measures. 
  • Eurozone: throughout the year, the short-end of the curve will steepen with the comeback of the idea that the ECB will normalize its rate policy in the coming years. 
  • United Kingdom: the worsening of activity indicators should exert some downward pressure on UK yields. 
  • Japan: the BoJ controls the long-end of the curve and is probably in favour of a decline of short-term bond yields.




  • EUR: with the rise of German long-term yields and the noise related to a possible change of ECB policies, the euro should appreciate this year but to do so, several political hurdles will need to be crossed.
  • USD: the evolution of the USD is currently dictated by the long-term rate differential. The US authorities (Fed, new administration) would not tolerate a significant appreciation of the USD. However, big stimulus measures would boost the USD.
  • JPY: the yen became undervalued. With the BoJ’s yield curve control policy, a rise of US yields triggers a yen depreciation.
  • GBP: we have a negative bias on the pound, which should continue to suffer from the gradual worsening of the economy.


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ITHURBIDE Philippe , Global Head of Research
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Macroeconomic and financial forecasts - April 2017
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