Articles Business Intelligence
Scotiabank releases global economics outlook

July 7, 2016 – The United Kingdom’s decision to leave the European Union represents a major economic shock to the U.K. and Europe. It will lower business and household confidence in the U.K. and Europe, while also potentially fanning the flames of referenda in other countries given the electoral cycle in Europe. Despite the importance of the shock to Europe, it is expected that the impact beyond its borders will be relatively contained, as the United States, China and India remain on reasonably solid footing. On balance, our global growth forecast has been marked down from 3.1% to 3.0% in 2016, and from 3.5% to 3.3% in 2017.

“Scotiabank’s global economics team offers perspectives on the global outlook from their respective positions on the ground to provide a fulsome view of the impact of Brexit and other factors that will influence the global economy into 2017,” said Jean-François Perrault, Senior Vice President and Chief Economist at Scotiabank. “We see the most immediate impact of Brexit has been felt in financial markets, with some currencies and government bond yields adjusting rapidly to increased uncertainty and the potential economic consequences.”

Highlights of Scotiabank’s Global Outlook include:

• United Kingdom: Minor recession predicted for the U.K. late this year, followed by no growth for 2017.
• Europe: Eurozone growth forecast for 2017 cut half a percentage point to about 1%.
• Canada: Little direct impacts from Brexit on Canada with growth expected at 1.3% this year and 2.0% in 2017 as the economy continues to adjust to the lower price of oil.
• United States: Fundamentals of the U.S. economy remain solid despite weak trend growth.
• Latin America: Prospects in Latin America remain mixed, given the importance of the U.S. economy to the region, and the expected improvement in many commodity prices, developments in the U.K. and Europe should not impose too much of a drag on the region.
• Asia: Asian economies are also likely to be only modestly affected by Brexit in a direct manner. China’s economic transition continues, with growth expected to slow to 6.2% in 2017.
• Capital Markets: Yields are likely to remain extremely low for some time given the demand for safe assets, and the need for continued monetary policy support in most advanced economies. Yields on 10-year U.S. Treasuries expected to fall to 1.2%.
• Currency: British Pound has more room to fall, to 1.25, as the U.K. navigates uncharted waters over the next quarters.
• Commodities: Price of WTI is expected to rise to about $55/bbl in 2017, which will provide an additional boost to growth in Canada, but we continue to expect little new investment in the oil patch in 2017 given breakeven costs.

The economic impact of Brexit will be focused on the U.K. and Europe and should trigger a reduction in investment and household spending in both economies, with the impact expected to be more pronounced in the U.K. Despite these major revisions to prospects across the Atlantic, the real economic impacts on the rest of the world should be muted.

For more information
www.scotiabank.com