Significant Changes in the Consensus – July 9, 2018

Last year’s broad global economic expansion saw growth pick up in most G-7 economies, although the respective weakness encountered in Q1 2018 has curbed momentum, as has a raft of geopolitical and trade tensions. The US is one of few economies to see GDP forecasts continue to trend upward, on course to achieve a growth rate close to 3% this year. Tax cuts raising the fiscal deficit have boosted the outlook, while a tighter labour market has generated inflationary pressures. Whilst ECB monetary policy remains extremely supportive of growth, the US Fed has continued its cycle of policy tightening with two rate hikes this year, with scope for a further two by year-end. The US shift toward protectionism has sparked fears of a global trade war, however, raising growth risks in export-oriented economies such as Germany.


GDP Forecasts from Recent Surveys

2018 GDP ForecastsThe formation of a populist government in Italy has renewed fears over financial volatility in the EU, and may cool talk led by French President Emmanuel Macron of closer union. Brexit adds another element of uncertainty, with several countries, in addition to the UK, fearing a potential no-deal scenario which would further hurt trade. UK growth has been hindered by a Brexit-induced investment slowdown and an FX-related inflation surge. While UK CPI inflation has since slowed, a soft GDP performance in Q1 has weighed on our panel’s growth projection. Higher inflation across Germany and France partly reflects a recent spike in energy prices. Meanwhile, Japan suffered a surprise GDP contraction in Q1, with data in Q2 showing little sign of improvement. Prices have also headed backwards amid tepid wage increases.

Recent CPI Forecast Changes


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Taken from Consensus Forecasts – G7 and Western Europe, July 2018.