HSBC have published their Economic Commentary for the fourth quarter of 2016.
It covers key points such as:
- Four months on from the UK’s vote to leave the EU, it seems that the Brexit decision has had virtually no material impact on the wider global economy. But, nearly a decade on from the financial crisis, the world economy shows little sign of a meaningful acceleration in the pace of recovery. Global GDP growth has been stuck in a range of between 2% and 3% for the past five years, a pattern which looks set to persist into 2017.
- Interest rates in many of the world’s major developed economies remain close to zero (in a few cases below zero), and there is a growing sense that central banks have pretty much used up their ammunition. Against this background, and with support for ‘populist’ political movements on the rise in many parts of the world, more countries look set to turn to fiscal stimulus as a means of boosting growth.
- It’s been a disappointing few weeks for trade negotiations, especially those involving the EU. The TTIP negotiations between the EU and the USA have reached an impasse from which they are unlikely to emerge until at least after next year’s elections in France and Germany; and a deal with Canada, which was due to be concluded at the end of October, has been blocked by the regional assembly of Wallonia.
- In the UK, the immediate economic impact of the vote to leave the EU has not been as severe as had initially been feared. The preliminary estimate of third-quarter GDP growth indicated that the UK economy grew by a respectable 0.5% during the third quarter, an outcome which is considerably stronger than the Bank of England had assumed when it prepared its August Inflation Report.
- Accordingly, the further reduction in interest rates and the further expansion of the Bank of England’s QE programme, which the MPC had previously signalled was very much on the cards, now looks unlikely. HSBC expects UK Bank Rate to remain unchanged at 0.25% until at least the end of 2017.
- But there is little cause for complacency. With the pound having fallen appreciably since the referendum result, import costs are starting to rise. This will feed through into higher inflation, eroding consumers’ spending power. The second half of 2016 will turn out to be somewhat better than we had expected in the immediate aftermath of the referendum, but the weakness of sterling makes it likely that 2017 will bring a marked slowdown as inflation makes a comeback.
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