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Macroeconomic and financial forecasts - March 2017


  • United States: Capex rebounded in Q4 2016. Growth continues to be driven by domestic demand. However, wage growth remains modest and core inflation remains 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 3 quarters of 2016. Data released since the end of last year point to continued economic improvement in Q1. Additionally, fiscal policy remains a key growth driver. The BoJ’s policy, which aims to keep the 10-year rate at zero for the foreseeable future, is enabling accommodative monetary conditions to remain in place.
  • Eurozone: The recovery is consolidating. 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, temporary drivers (decline in the euro and oil prices) are sputtering and political risks associated with elections (in the Netherlands, 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: Q3 GDP (-0.4% yoy) contracted less than in Q2 (-0.6%). In Q4, retail sales continued to decline. However, industrial output and PMIs are improving. We are maintaining our scenario of an exit from crisis in 2017 and are forecasting growth of 1%.


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  • FED: the Fed raised the fed funds target to 0.75-1.00% in March. The rise of inflation expectations has been a game changer. The Fed should hike two other times in 2017. The normalization of the balance sheet may become a market theme.


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  • United States: long-term rates can rise slightly in the coming months. This being said, inflation breakeven rates are not far from "normal" levels.


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  • 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.
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ITHURBIDE Philippe , Senior Economic Advisor
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Macroeconomic and financial forecasts - March 2017
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