Data, forecasts and analysis on 200 countries, 100 sectors and 3,000 cities and sub-regions
Download a free executive summary of our analysis.Download free report
34 emerging and developing economies added
Deeper coverage into US markets
Stone & McCarthy Research Associates joins Oxford EconomicsLearn more here
Oxford Economics is the world leader in global forecasting and quantitative analysis for business and government, and the most trusted resource for decision-makers seeking independent thinking and evidence-based research.
Consumer sentiment slides slightly in June but attitudes are still positive overall. Solid fundamentals will lessen any negative impact of the Brexit vote onto attitudes and keep consumers spending in 2016.
The surprise vote in the UK to quit the EU has seen sharp falls in world financial markets. These reactions are out of line with any likely impact on the UK economy from the vote; markets are instead pricing in a high risk of a broader financial crisis engulfing the rest of the EU. This risk looks exaggerated to us.
Today’s sharp drops in global stock markets and periphery bonds are hard to square with the likely long-term impact on the UK – at worst a few percent of GDP in the long run in an economy that is only 3.5% of world output. Initial market reactions were of similar magnitude to the immediate aftermath of the Lehman Brothers failure in 2008.
It appears markets are pricing in a moderate risk that the UK vote is a systemic event that leads to a political chain reaction in the rest of the EU that collapses the single currency area and/or leads to debt restructuring in the Eurozone ‘peripherals’ – a re-run of the 2011-12 crisis.
The possibility of such a chain reaction has probably gained credence in recent weeks with polls suggesting discontent with the EU in countries such as the Netherlands and Italy. In Italy, as well as a large debt stock there is also the issue of high bad debts at banks as a systemic risk factor.
We think these market concerns are overdone. We do not see a high chance of a systemic crisis in the EU involving other countries exiting the EU quickly or a sovereign debt restructuring – especially as the ECB has the capacity to step in to prevent a runaway rise in peripheral bond spreads, as it did in 2012. We also think the EU could take steps to avoid break-up spreading including by concessions to member states on the migration issue.
Over the past couple of years, the EU's eastern flank has seen growth rates of more than double those of 'core' Europe. With a lot of this acceleration coming from a looser policy mix and higher absorption of EU funds, we ask how sustainable these stellar growth rates will be in the long run.
With some of the worst demographic trends in the world (only the former Soviet Union fares worse), labour is set to become an increasing drag on growth in the region, subtracting between 0.1 to 0.3pp from potential growth in 2020-2050.
Capital accumulation is likely to continue driving potential growth on a similar scale to that seen in 2010-2015 (at around 1pp), given the still large gaps in capital stock per worker compared with the euro area average.
Productivity, meanwhile, remains a source of significant uncertainty, not least due to difficulties of measurement. Some of the initial efficiency gains – from transitioning to a market economy, liberalising trade and plugging into German supply chains – are likely to dissipate going forward and will not be as supportive of growth.
On the other hand, there is still room for TFP gains through further labour market reforms to increase the efficiency with which increasingly scarce labour is used, and through financial deepening, which is still only a third of that in the 'core' EU.
On balance, we expect the average regional TFP to rebound somewhat from the lows of 0.8pp in 2010-2015 to around 1.5pp in 2016-2025, but to remain well below the highs of 2000-2008.
As a result, potential output growth in the region has certainly declined compared to that seen before the crisis, from over 3.5% to around 2-2.4%, but still remains above that of the core EU (at around 1.1%).
Broad-based weakness in durable goods orders in May. Weak foreign demand, a strong dollar, and depressed oil & gas activity will continue to drag business investment. The Brexit decision adds uncertainty to the outlook but the impact on the real US economy will be marginal.
The impact of Britain's decision to leave the EU is being felt across global markets, with European equities dropping considerably this morning. Safer assets on the other hand are reaching new highs, with the German 30-year bond yield at record low of 0.3%.
We believe the outcome of the referendum will have consequences for the Eurozone and we are planning to cut the Eurozone forecast. For 2017, Eurozone GDP will expand by 1.6% and by 1.5% in 2018, 0.1-0.2 percentage points lower than currently in baseline. But the impact would be much larger if a Brexit vote fuelled more political and market uncertainty across Europe.
The Turkish economy grew by 4.8% year-on-year in Q1 2016, compared to 5.7% in the previous quarter, driven by consumption, government spending and stockbuilding, whereas investment stagnated and net exports worsened.
Despite the strong GDP print, we are not convinced that this constitutes “healthy” growth. We have repeatedly warned that the government’s strategy to achieve high growth rates by boosting consumption is unsustainable. Notwithstanding low oil prices, the external imbalances have not narrowed sufficiently to stop being a source of vulnerability for the economy, while higher consumption will prevent inflation from falling towards target on a sustained basis.
We assume early elections and increased domestic uncertainty in our baseline forecast, which sees GDP growth moderating to 3.3% in 2016 from 4% in 2015. Moderating inflation and a more stable lira has allowed the central bank to continue its easing cycle. Barring any sustained post-Brexit financial volatility, we think the bank will have room for a further, albeit more gradual, cut in July.
Note: This Research Briefing was originally published in March as part of our programme of Brexit-related analysis. Given the outcome of the referendum, we are republishing for the benefit of clients. The assumptions contained in this report are broadly consistent with developments in markets so far. We will update this work in the near-term in light of market and other developments.
A scenario run on the Oxford Global Model suggests that Brexit would leave the level of UK GDP 1.3ppt lower by Q2 2018 compared with our baseline forecast that the UK votes to stay in the EU. A vote to leave would mainly shock business confidence but consumers would be adversely affected too. Exporters in price-sensitive sectors would benefit from a weaker exchange rate.
Market pricing suggests that sterling could initially fall by around 15% before recovering some of its losses, while the heightened uncertainty would also be expected to drive a sharp drop in equity prices in H2 2016.
Brexit would present something of a dilemma for policymakers. While a weaker pound would cause inflation to initially spike upwards, we would expect the MPC to look through this and cut Bank Rate in order to support activity. And with the UK likely to retain its reputation as a safe haven, this would also see gilt yields stay lower for longer.
Weaker growth would also put the Chancellor in breach of the fiscal mandate, though we would expect him to plead extenuating circumstances, rather than tighten policy and potentially exacerbate the slowdown.
The UK has chosen to leave the EU. Along with the economic disruption that may follow, the narrow margin of victory – 51.9% for ‘Leave’ versus 48.1% for ‘Remain’–suggests that disengagement will not be a smooth process.
Brexit is likely to be a net negative to the economy, although the lack of any precedent means that predictions must be caveated. We expect the level of GDP to fall by just under 1½% by the middle of 2018 compared to a ‘Remain’counterfactual. But the boost to net exports from cheaper sterling and a likely cut in Bank Rate by the MPC should mean that the economy avoids recession.
Looking forward, how UK policymakers use new-found freedoms may matter as much for minimising any hit to the economy as the future relationship forged with the remaining EU.
We think markets are overestimating what a return to macroeconomic credibility, on its own, can do to boost growth. In our opinion Brazil will struggle to see a sharp rebound in growth against a background of domestic deleveraging, severe fiscal squeeze, subdued global demand and unfavourable terms of trade. As such, we see GDP contracting by 3.4% this year followed by a timid expansion of 0.1% in 2017 (albeit this is not as bleak as our previous forecast).
Latin America's largest economy will take ten years to return to its 2013 level of per capita GDP, marking one of the worst episodes of destruction of a country's income since the Great Depression.
New home sales give back some of their April gain but remain upbeat. Low mortgage rates continue to bolster sales activity in the face of historically low inventories and high prices. Stronger wage growth and continuing employment gains will keep housing demand buoyant. Rising builder activity will gradually reduce the drags from low inventories and high prices.
Although the Eurozone PMIs weakened in June, the fall was small and the composite PMI has not been a particularly reliable indicator of the rough pace of GDP growth anyway. Accordingly, we maintain our view that, after a sluggish Q2, the Eurozone recovery will regain momentum.
Meanwhile, the ECB restated Greece’s credit waiver yesterday which will ensure that Greek banks can post government bonds as collateral with the ECB. For now, Greek government debt will still not be bought under the QE programme.
In line with our forecast, BanRep delivered a 25bps hike in its monthly meeting, taking interest rates to 7.5%.Last night’s decision did not change our view that BanRep will remain on hold at 7.5% for the remainder of the year but we cannot rule out additional hikes should adverse developments take place.
Existing homes sales rose to a near-decade high in May despite the drags of low inventories and high prices. Sales activity should remain solid as firming wage growth and low mortgage rates support a gradual release of pent-up housing demand.
Following some weakening in April, overall economic growth held up in May. Demand-wise, investment growth dropped sharply, exports also weakened, but consumption picked up momentum. Real estate FAI held up, supported by strong sales growth but manufacturing FAI growth fell sharply, reflecting substantial spare capacity, still subdued profit margins and uncertainty about demand prospects in several sectors.
Although growth softened in April-May, compared to March, it remained better than at the turn of the year and momentum is sufficiently strong to lead to reasonable GDP growth in Q2. But inventories of unsold housing are still too high suggesting that the current recovery in housing construction will probably not be sustained. Thus, the achievement of 6.5% GDP growth this year – the target is 6.5-7% – will depend substantially on further macroeconomic stimulus, including generous credit availability. While the senior leadership has indicated that concerns about leverage remain on their radar screens, we do not expect a significant adjustment in the policy stance this year.
With nothing major published on the data front today, all eyes in Europe are still on tomorrow’s EU membership referendum in the UK. Today we take a look at the Eastern European dimension of this historic choice.
The direct economic impact of Brexit on the CEE would be limited, with the EU funding being the most important of the economic channels. With indirect effects, however, including the confidence shock, Brexit could shave off as much as 1.3-1.4pp from the CEE economies’ growth by 2018. The CEE may also use free movement of workers as leverage in the ensuing trade negotiations in the event of Brexit. This may backfire, as limiting EU migration is exactly what the Leave campaign is calling for.
The UK’s vote on membership of the EU is only a matter of hours away. And it is still impossible to tell from the polls whether ‘Remain’or ‘Leave’will prevail. But what if Brexit happens?
Over the last three months, Oxford Economics has analysed the gamut of economic implications that could flow from a decision to leave the EU, including via a major multi-scenario modelling exercise in which our assumptions are set out transparently.
Analysis of Brexit is challenging given no precedent for a country leaving the EU. So much comes down to judgement. In our estimation, the net economic consequences of leaving the EU are likely to be adverse in both the short- and long-run.
In the short-term, a hit to business confidence and the consequences of a Brexit-inspired fall in sterling in raising import prices and depressing household spending power are predicted to overwhelm the boost from a likely cut in interest rates and the gain to net exports from a weaker pound. But a recession should be avoided.
In the longer-run, the economic implications of leaving the EU may depend as much on the response of UK policymakers as on the trading relationship established with the remaining EU. A liberal approach to trade, migration and regulation could mean leaving the EU imposes a trivial cost. But a protectionist attitude in those areas would exacerbate the loss from divorce.
Our projections are significantly less pessimistic than analysis produced by some other bodies. This is particularly true in comparison with the work of HM Treasury, the gloomy results of which rest on a number of questionable assumptions.
Our analysis of Brexit has also focused in detail on specific facets of the economy, including trade, FDI, immigration, the public finances and the City. In all these areas, Brexit offers pros and cons, although the effects are far from evenly distributed.
Chair Yellen’s testimony before the Senate Committee on Banking, Housing and Urban Affairs echoed the June FOMC statement: the Fed is optimistic about the outlook, but also uncertain and therefore cautious regarding policy.
Yellen noted that risks to short-term final demand and long-term growth were tilted to the downside. She reiterated that the economy might require a little extra nudge from lower interest rates to achieve the growth and inflation targets.
We maintain our expectations of a July rate hike on the basis of an expected rebound in Q2 GDP growth around 2.5% and firmer payroll growth in June. However, should economic data disappoint, the Fed would delay the rate hike until September.
Japan will continue to run significant current account surpluses despite its ageing population. A surplus has persisted with a large trade deficit in recent years. Japan’s stock of foreign assets are generating a substantial investment income surplus. From a financial sector balances perspective other sectors are unlikely to drive material changes in the current account balance.
For the first time in almost a decade, Indec has published inflation data generally regarded as accurate. In May the new CPI index increased by 4.2% on the month, pushed up by the removal of large subsidies on transport and utility costs. Looking ahead, we expect the annual inflation rate to decelerate to 35% by year-end from the current pace of 44% – on the back of a contraction in private demand and a stronger currency though wage rises of more than 30% are likely to prevent inflation from falling further.
A 90-page bill has recently been submitted to Congress that aims to tackle some of the key imbalances in the economy. The bill includes a mixed bag of fiscal reforms, affecting both pensions and the tax system. Some of the changes will result in higher revenues (temporary in some cases) and a likely reduction in permanent expenditure, such as the tax amnesty law, the selling of the equity held by the Social Security Agency and an increase in the retirement age (if approved), while others are more expansionary, including a reduction in the wealth tax and more generous arrangements for pensioners.
The new administration is pressing on with implementing a business-friendly growth model, albeit the changes will take time to boost growth and the essential fiscal consolidation will dampen activity significantly in the short term.
Net financial flows fell moderately in May, leading to a net fall in FX reserves of US$8bn, adjusted for valuation changes.Expectations on CNY depreciation have come down, but we forecast some more weakening against the US$. We also expect overall net financial capital flows to remain moderately negative in the coming months.
Following a four-year process, Germany’s Constitutional Court finally rejected the legal challenges against the use of the ECB’s OMT programme. While expected, the decision is still important as an alternative ruling might have unnerved the markets even more ahead of the Brexit vote. Meanwhile, in line with the earlier Sentix index, the German ZEW indicator showed an improvement in sentiment amongst investors in June. This corroborates our view that beyond the short-term Brexit uncertainties, activity should regain momentum in the second half of the year.
The fiscal deficit in May was barely lower than that recorded in the same month last year and left borrowing well off track to meet the OBR’s full-year forecast for 2016-17.
The possibility of a bounce back in activity post-EU referendum offers some cause for hope. But the headwinds facing the economy, including the Government’s own programme of fiscal austerity, point in the opposite direction.
The relatively strong start to the year with revised Q1 GDP up 0.5% on the quarter will not be sustained. The extra working day because of the leap year boosted growth, so Q2 may see a fall as a counterpart to this artificial increase. The underlying pace of growth remains very modest: domestic demand will be hampered by weak investment as profits decline, while consumer spending will stay weak despite the announcement of the delay in the consumption tax increase from April next year to October 2019.
Headline inflation is below zero and core inflation now below 1% (April). This, plus the continued strength of the yen, suggests that the Bank of Japan will ease policy further – probably in July. We expect annual asset purchases to be increased by ¥20tn.
All the in-out talk has shaken global financial markets, but do recent market moves represent a buying opportunity? What are likely to be the best performing assets in the event of Brexit, in the UK and globally?
UK assets have become sensitive to ‘Brexit’-related news. We estimate that recently a 1% change in the probability of Brexit has moved the sterling effective exchange rate by around 0.17%.
We favour a “buy the Brex-dip” strategy. Recent FX moves imply a possible 9% further drop in sterling post-Brexit, but our modelling and analysis suggests sterling would be likely to rally after an initial sell-off.
UK equities have underperformed world stocks recently which is surprising given the FTSE 100 reflects the world economy more than the UK’s. UK gilts by contrast have done well – we think they will stay attractive after Brexit with the prospect of monetary easing and the global shortage of ‘safe assets’.
Globally, recent market moves appear overdone, exceeding those we modelled in a very severe Brexit scenario. Markets seem to be pricing the risk of a ‘Lehman Brothers’ moment which we think most unlikely.
Eurozone assets, especially in the ‘periphery’, have performed poorly, with investors seemingly concerned about ‘Brexit contagion effect’. These fears look overblown to us but Eurozone assets could slide further post-Brexit.
We develop a systematic framework for assessing Brexit hedges in global equities, bonds and currency markets. Gold and the yen are the obvious short-term hedges. UK gilts may be the best performing bonds, while Korean and US equities could be good safe havens.
our June global macro chartbook we summarise our key global themes
and asset views. We also highlight the contributions of our recent research.
Our analysis shows Canadian non-energy exports are much more sensitive to external demand than fluctuations in the currency. Beyond a weak currency, a stronger global economy, particularly in the US, is needed for non-energy exports to provide a consistent boost to real GDP growth.
Economic growth for Q1 was revised up slightly to 0.6% q/q following the weaker, terrorist attack-related 0.3% seen in Q4 and high-frequency data suggests that activity has remained solid in Q2. Industrial production jumped 1.2% m/m in April reversing all of its Q1 losses, while consumer confidence in May rose to its highest level since before the financial crisis against the backdrop of an improving labour market. In light of the better-than-expected Q1 performance and the forecast continued strength of domestic demand, we have upgraded our GDP growth forecast for 2016 to 1.7% from 1.5% before and project growth to remain unchanged in 2017 and 2018. This is now more or less in line with the performance of the Eurozone as a whole, but well-above the French economy’s long-run trend growth rate of 1.3%.
2016 is a politically heavy year for the EU. In spite of the economic recovery, anti-establishment parties continue to take hold of politics. Markets rallied on a higher likelihood of “Bremain” today. The local elections were a triumph for Italy’s Five Star Movement this weekend and Spain is close to electing Unidos Podemos as its second largest party in parliament on Sunday.
Although interest rates have fallen substantially since 2008, debt service costs have not necessarily followed suit. As lower rates have spurred borrowing, the debt burden has in some cases risen. This creates a potential risk for when interest rates begin to rise.
The Bank for International Settlements publishes debt service ratios – interest and amortisation relative to income – for 32 countries. For 16 of them, the data is further broken down between households and non-financial companies.
The data show that the relationship between changes in interest rates and changes in the debt service ratio, while there, is less clear than would intuitively have been expected.
Obviously, lower interest rates were intended to spur credit growth. But, equally obviously, the stronger the credit growth, the stronger economic activity and the sooner interest rates will eventually rise.
Attempting to group the countries by developments since 2008, leaves us with three countries – Belgium, France and Sweden – in the ‘malign quadrant’ of rising debt and debt service for both households and NFCs. On the corporate side alone, Australia, Finland and Italy join them. In the case of Belgium and France, reliance on long-term fixed rate mortgages should neutralise some of the risk; in Sweden, widespread use of variable rate mortgages will exacerbate it.
On balance, May's trade data point to a slight improvement in exports in both nominal and volume terms for most of the region. However, we remain cautious about both the pace and extent of the improvement – which is expected to be gradual and mild, leading to only a modest recovery in the open economies that depend heavily on global and regional trade flows.
The surprise departure of Governor Rajan from the Reserve Bank of India (RBI) could raise concerns about the direction of monetary policy and the credibility of the RBI as an inflation-targeting bank. With regard to his successor, the appointment of a RBI insider might go a long way in assuaging investor confidence and ensuring policy continuity, while a more political nomination would raise worries about RBI independence.
Housing starts slip while permits inch up in May.
After taking a six-month winter breather, we see housing activity warming up this summer and supporting stronger residential investment.
In line with our forecast, the central bank (BCCh) kept interest rates unchanged at 3.5% at its June meeting.Although the board did not change its normalization bias to neutral, we expect rates to remain at 3.5% for the remainder of the year: inflation continues to fall towards the target and domestic risks to growth are still skewed to the downside.
While markets seem to have started today on a positive note, volatility appears to remain very high. Yesterday the spreads between the German government bond yields and the Italian and Spanish ones touched their highest level in around a year while yields on Switzerland’s 30-year bonds dropped below zero.
Today the European Stability Mechanism approved the first tranche of the loan release to Greece while the ECB is expected to restore Greek banks' access to its cheap funding operations next Wednesday.
trade data confirms that a rebound in goods export volumes in Q2 is on track. Both
oil and non-oil domestic exports recorded double-digit growth. However, while
we think the impulse from oil exports is likely to continue for a number of
months, the outlook for NODX is less certain. In particular, external demand
remains sluggish and the boost from the pharmaceutical sector is likely to
As expected, the German economy made a strong start to the year, with GDP rising by 0.7% in Q1, much better than the 0.3% rises in the preceding two quarters. While the economy looks set to lose a bit of momentum in Q2, GDP for the year as a whole is still on track to expand by 1.7% – above the economy's potential rate of growth and the consensus forecast.
While higher inflation in H2 and beyond will erode household real spending power, growing bottlenecks in the labour market point to an acceleration of wage growth that will help to offset some of this negative influence. In addition, there is scope for households to reduce their savings ratio following the recent pick-up due to the strength of income growth.
In addition, there are also signs of a broadening of the recovery. External worries have not stopped equipment investment from rising by almost 3% in Q4 and Q1 combined. And the strength of new financing from non-financial firms points to further strength ahead. As a result, we have raised our investment forecast this year from 2.9% to 3.7%.
Overall, we still see the economy expanding by 1.7% in 2016 and 1.9% in 2017, unchanged from a month ago and a touch above the consensus.
Yesterday, the National Institute of Statistics (Indec) released its new CPI index, after a seven month review process. The new index expanded by 4.2% m/m in May – with no annual figures released.On the back of weak domestic demand we expect inflation to decelerate in the remainder of the year. Based on the Buenos Aires index (BsAs CPI), we expect inflation to edge down to 30% y/y by year-end, from 44% y/y currently.
Export growth has been the big miss so far in the Eurozone recovery and we do not expect this to be reversed soon. Growth in world trade weighted by Eurozone export shares is set to rise only slightly this year while the real exchange rate is seen broadly stable in 2016 and weakening slightly in 2017. Net exports will continue to have a negative contribution on GDP until end-2016.
The British public's vote to leave the EU will have wide-scale implications for businesses across the industrial spectrum.
Oxford Economics has completed a quantitative research … more
This study investigated the economic and social impact of mobile internet technology across the economies of South East Asia. In-house econometric research established the relationship … more
Retail banks face no shortage of challenges — everything from agile “fintech” disruptors and changing customer expectations to complex compliance demands and outmoded IT … more
From Fast Company
What makes an office worker happier than perks like free food, natural light, or even onsite day care? According to a new report by Oxford Economics and consumer electronics … more
From The Wall Street Journal
Sales of existing homes rose to their highest level in more than nine years and prices climbed to a new peak in May, the latest sign of rising demand amid steady … more
From CBS News
Head of U.S. macroeconomics, Greg Daco weighs in on the potential impacts of the U.K. exiting the European Union. He highlights the risk of uncertainty, saying, "Businesses … more