Global scenarios service Q1 2017
Global scenarios service: Q1 2017
Le Pen threatens to rewrite the global risk outlook
Global scenarios service Q1 2017
Contents
Executive Summary ................................................................................................... 1
1 Baseline scenario ................................................................................................ 9
2 Le Pen victory sparks Eurozone crisis ............................................................ 11
3 Bond market sell-off .......................................................................................... 20
4 Tighter policies in China ................................................................................... 29
5 Trump presidency weighs on global growth ................................................... 37
6 US growth surges amid Trump fiscal stimulus ............................................... 46
Global scenarios service Q1 2017
Executive Summary
Political uncertainty continues to dominate the global economic landscape. Over the past three
months, concerns have heightened over the impact of major shifts in US policy on the global
economy, even as our baseline forecast has edged up with the prospect of fiscal stimulus in the US.
But, as highlighted in the latest Oxford Economics Global Risk Survey, a key emerging risk lies
outside of the US, amid increased fears over rising populism in the EU—and the consequences of a
potential Le Pen victory in the upcoming French presidential elections.
We explore these and other key economic risks in this report:
Le Pen victory sparks Eurozone crisis (GSS weight=5%): A Marine Le Pen victory in France
raises doubts about the future of the Eurozone, once more plunging Europe into crisis.
Bond market sell-off (GSS weight=10%): The bond market rout continues, choking off US recovery
and spilling over globally.
Tighter policies in China (GSS weight=10%): The Chinese authorities scale back growth targets
and rein in the expansion of credit to a more sustainable trajectory.
Trump presidency weighs on global growth (GSS weight=10%): Fiscal stimulus hopes are
dashed as President Trump refuses to negotiate with Congress and adopts a highly protectionist and
isolationist stance.
US growth surges amid Trump fiscal stimulus (GSS weight=25%): Trump negotiates a relaxation
of fiscal orthodoxy in exchange for a less protectionist trade stance.
Chart 1: Scenario-based distribution of global growth in 2018
Note: Each bar represents a different 0.1 percentage point range, with the estimated probability of growth falling in that range shown on the y-axis. Dashed lines show the 2018 world GDP growth outcome under the baseline and the different scenarios. Methodological assumptions, including the distribution around each scenario and the interaction of scenarios, are set out here.
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Scenario 1 – Baseline
In our baseline forecast, global growth strengthens over the near term. We assign a Global Scenarios
Service (GSS) weight of 40% to this scenario.
Oxford Economics’ central forecast envisages world growth of 2.6% in 2017 and 2.9% in 2018, 0.1-0.2pp
higher than expected three months ago and above the 2.2% pace experienced in 2016. The US drives the
upward revision: with a Trump fiscal stimulus package now in prospect, we expect 2.3% and 2.5% growth in
2017 and 2018 (previously 2.0% and 1.9%). The growth outlook has also improved a little in the Eurozone
and, following recent yen depreciation, in Japan.
Higher inflation is also in prospect. At the global level, inflation is expected to rise to 3.3% in 2017, compared
with 2.7% in 2016. In part, this reflects the direct impact of higher commodity prices, with oil prices this year
expected to be $2 higher at $52 per barrel than anticipated three months ago. But we have also revised up
our forecasts for core inflation in the US and Germany, at the same time as the weaker yen adds to the
inflationary impetus in Japan.
While monetary policy remains supportive, a faster pace of policy tightening is now envisaged against the
more reflationary backdrop. In the US, the Federal funds rate is expected to reach 1.7% by the end of 2018,
around 0.3pp higher than three months ago. Consistent with more rate rises and higher inflation, our
baseline forecast also sees US government bond yields rise more rapidly, to 3.2% by the end of 2018, 0.6pp
higher than at the time of the previous report; yields are also modestly higher in other advanced economies,
including the Eurozone and Japan. In foreign exchange markets, the post-election dollar strength—and euro
and in particular yen weakness—is also sustained over the forecast period.
Chart 2: Oxford Economics Global Risk Survey—downside risks
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Scenario 2 – Le Pen victory sparks Eurozone crisis
In this scenario, we explore rising populism in the EU—a key risk highlighted in the latest Global Risk Survey
(see chart 2 above). We assume that Marine Le Pen, the right-wing populist candidate, is victorious in May’s
presidential elections in France and the Front National wins a majority in France’s parliamentary elections
the following month. With the French president given a mandate to renegotiate the terms of France’s
membership of the European Union and the Eurozone, Europe is plunged once more into crisis.
In recent months, Le Pen has gained in the polls, as the range of presidential candidates has narrowed and
with Republican Francois Fillon facing formal investigation. A Le Pen victory still remains unlikely given
France’s two-round presidential election system. And, even in the event of a Le Pen victory, the economic
impact would be most likely be relatively benign, especially if the Front National fails to secure a
parliamentary majority. But, as this scenario explores, there is the risk of a more disruptive turn of events.
In the scenario, victories for Le Pen and the Front National spark fears of Eurozone breakup, prompting a
sharp sell-off in bond markets in France, but even more so in peripheral Eurozone economies. Equity
markets experience a sharp adverse reaction across the euro area, and the value of the euro falls
significantly. Credit conditions and investor confidence deteriorate, spilling over to the real economy.
Confidence is further shaken as Le Pen reiterates her campaign rhetoric on France’s relationship with the
EU. The new president demands greater barriers to trade and immigration, threatening to pull the country out
of the EU and Eurozone should her demands not be met. Le Pen’s brinkmanship weighs further on
investment in Europe, as uncertainty on the outcome of negotiations with the EU increases. The ECB
intervenes as a result, extending quantitative easing and commencing equity purchases.
Ultimately, Le Pen backs down, unwilling to take France out of the EU or Eurozone given the associated
economic and political cost. Economic conditions begin to normalise from early 2019. By then, the level of
GDP is already 1.2% below baseline in the Eurozone and 1.3% lower in France itself. But the global impact
is more muted, with world GDP down 0.6% overall.
We assign a 5% GSS weight to this scenario.
Scenario 3 – Bond market sell-off
The surge in bond yields and sustained dollar strength since the US presidential election have raised
concerns that tightening financial conditions could choke the US recovery before the expected fiscal stimulus
comes to pass. Our previous analysis suggests that these fears are overdone for now, but that risks are
likely to materialise if the bond rout continues. This scenario explores these risks.
In the scenario, inflationary pressures prompt the Fed to raise rates more quickly, hiking four times during
2017. With investors reassessing the future pace of tightening, and term premia edging up from historically
low levels, US Treasury yields surge higher. The shock spills over to global markets: bond yields spike up,
the dollar makes further gains and world equity prices fall.
The economic impact varies across countries. In the US, credit conditions tighten as short- and long-term
rates rise, weighing on domestic demand. But the shock is buffered as the Fed slows its pace of tightening
from 2018 and fiscal stimulus comes on stream. Other advanced economies – while facing higher yields and
a weaker trade outlook – are also able to cushion the blow by keeping policy rates lower for longer.
But many emerging market economies are forced to raise rates in an attempt to staunch capital outflows and
defend their currencies. Worst hit are those, such as Malaysia and Venezuela, that are vulnerable to a
stronger dollar and weaker commodity prices.
We assign a GSS weight of 10% to this scenario.
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Scenario 4 – Tighter policies in China
While China comfortably met the target of at least 6.5% GDP growth in 2016, a big question for 2017 and
beyond is whether the authorities will continue to aim for overly ambitious GDP growth targets or start to rein
in credit to put growth on a more sustainable footing. In this scenario, we consider the latter possibility.
Under this scenario, China’s policymakers recognise the unsustainability of the current debt trajectory; they
decide to lower their overly ambitious growth targets and they rein in the expansion of credit, supported by
structural reforms to bolster the role of equity financing and the efficiency of the financial sector. Credit
growth is gradually reduced and the ratio of credit to GDP peaks in late 2021. Investment spending is hit in
particular. But, in the absence of abrupt property, equity or FX corrections, spill-overs to the rest of the world
are contained compared with a more adverse scenario.
The overall result is a delay to the anticipated pickup in the pace of global economic expansion. World GDP
growth remains subdued at 2.4% in 2017 and 2.2% in 2018, compared with the baseline rise to 2.6% and
2.9% respectively. But there are marked differences in the impact on GDP across countries. Those that
suffer most are China itself, commodity producers such as Russia and Venezuela, and China’s Asian
neighbours such as Hong Kong and Singapore.
In financial markets, Asian and commodity-exporters’ currencies depreciate, owing to the fall in oil and other
commodity prices and slower growth in the Chinese economy. Advanced-economy government bond yields
weaken as policy rates remain low for longer. And global equity prices weaken, remaining depressed
throughout the forecast period.
We assign a GSS weight of 10% to this scenario.
Scenario 5 – Trump presidency weighs on global growth
In our adverse Trump scenario, we assume that, the new president adopts a highly protectionist and
isolationist stance, fails to implement a significant fiscal stimulus package and proceeds with immigration
curbs and deportations that result in substantial labour force declines. Against a backdrop of heightened
uncertainty, the US and global economies are badly shaken.
On trade, Trump proceeds with his proposed 35% and 45% trade tariffs on Mexico and China in H2 2017
and maintains them throughout his presidency; further tariffs are also imposed on South Korea and Taiwan.
These trading partners retaliate by matching the tariffs imposed by the US.
Trump’s refusal to negotiate on his extreme trade proposals means that the Republicans maintain a deficit-
neutral stance on the budget. The resulting fiscal package involves $500 billion of tax cuts over the next ten
years—a less substantial, more regressive policy change than in the baseline and matched by offsetting
revenues and spending cuts. The $200 billion infrastructure stimulus assumed in our baseline forecast also
fails to materialise.
The economic and market implications are profound. By late-2019, the US economy has entered recession;
by 2021 the economy is 6% smaller than in the baseline forecast. As the impact of Trump’s policies spills
over, the global recovery is undermined, with world growth only returning to baseline at the very end of the
five-year forecast. Commodity and asset market impacts are similarly marked, with oil prices weaker and
substantial movements in both policy rates and yields.
We assign a GSS weight of 10% to this scenario.
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Scenario 6 – US growth surges amid Trump fiscal stimulus
While our first Trump scenario examines an adverse outcome for the US economy, a possibility highlighted
by the latest Oxford Economics Global Risk Survey (see chart 3 below) is that the result of congressional
negotiations is far more stimulatory. In particular, a greater relaxation of fiscal orthodoxy might be achieved
in exchange for a less protectionist stance than the new president campaigned on, as we explore in our
upside Trump scenario.
In this scenario, the result of congressional negotiations is significantly more expansionary than assumed in
the baseline. The fiscal package is larger, with $2 trillion worth of personal income and corporate tax cuts
and a $250 billion public infrastructure investment plan. In exchange, Trump refrains from imposing trade
restrictions.
As a result, the US economy grows more quickly than in the baseline. It benefits not only from the initial
impact of lower taxes and increased infrastructure spending, but also increased confidence in Trump and his
team’s ability to govern. In 2017, growth edges up to 2.5% (2.3% in the baseline); in 2018, when the boost
from fiscal stimulus and private sector confidence peaks, growth reaches 3.6% (compared with 2.5%).
The global economy grows more quickly as stronger US growth spills over, fears over increased
protectionism dissipate and confidence improves. World growth reaches 2.7% in 2017 and 3.3% in 2018,
0.1-0.4pp above baseline. But the impact varies widely across countries, reflecting policy and market
developments. Economies around the world benefit from renewed confidence, stronger global trade and
more buoyant equity markets. But, as the Fed brings forward its tightening cycle (with the ECB and Bank of
England following suit), a stronger dollar and higher US interest rates reduce the attractiveness of emerging
market assets. As capital flows from emerging markets to the US amid investor concerns over the impact on
emerging market balance sheets and reduced incentives to 'hunt for yield', credit conditions tighten in more
vulnerable emerging market economies and the boost to activity is at least partially tempered.
We assign a GSS weight of 25% to this scenario.
Chart 3: Oxford Economics Global Risk Survey—upside risks
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Figure A: Summary of main scenarios
The results from these scenarios are available in other formats. Excel and chart pack data, including for key
asset price variables, can be downloaded here. Full scenario data results are available on the GSS databank
– for an expanded selection of 80 economies, made possible through the recent expansion of the Oxford
Global Economic Model.
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2015 2016 2017 2018 2019 2020 2021
Oxford Baseline Forecast (GSS weight=40%)
US 2.6 1.6 2.3 2.5 1.8 1.6 1.6
Eurozone 1.9 1.7 1.5 1.5 1.4 1.3 1.3
China 6.9 6.7 6.3 5.9 5.7 5.6 5.4
World 2.7 2.3 2.6 2.9 2.8 2.7 2.7
Le Pen victory sparks Eurozone crisis (GSS weight=5%)
US 2.6 1.6 2.1 2.2 2.0 1.6 1.7
Eurozone 1.9 1.7 1.3 0.5 1.4 1.6 1.5
China 6.9 6.7 6.2 5.5 5.6 5.6 5.7
World 2.7 2.3 2.5 2.5 2.8 2.7 2.9
Bond market sell-off (GSS weight=10%)
US 2.6 1.6 2.0 1.8 1.7 1.7 1.8
Eurozone 1.9 1.7 1.4 0.7 1.0 1.3 1.5
China 6.9 6.7 6.0 4.7 5.7 5.9 5.5
World 2.7 2.3 2.4 2.2 2.5 2.7 2.9
Tighter policies in China (GSS weight=10%)
US 2.6 1.6 2.2 2.0 1.4 1.8 1.7
Eurozone 1.9 1.7 1.3 0.8 1.0 1.4 1.4
China 6.9 6.7 5.7 4.6 4.8 5.0 4.8
World 2.7 2.3 2.4 2.2 2.2 2.6 2.6
Trump presidency weighs on global growth (GSS weight=10%)
US 2.6 1.6 1.6 1.0 0.0 0.0 0.8
Eurozone 1.9 1.7 1.2 0.9 1.1 1.3 1.4
China 6.9 6.7 5.8 4.0 4.6 5.0 5.7
World 2.7 2.3 2.2 1.9 2.0 2.1 2.6
US growth surges amid fiscal stimulus (GSS weight=25%)
US 2.6 1.6 2.5 3.6 2.2 1.8 1.8
Eurozone 1.9 1.7 1.7 1.8 1.5 1.2 1.1
China 6.9 6.7 6.5 6.4 6.5 6.0 5.5
World 2.7 2.3 2.7 3.4 3.0 2.7 2.7
Alternative GDP growth forecasts*
Note: World GDP growth at 2010 prices and market exchange rates. We report in brackets the weights attached to the baseline and different scenarios. GSS weights are constrained to sum to 100%. See our previous research for more information about scenario probabilities and how they can be used to construct a scenario-based distribution (see also Chart 1 on page 1).
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Equities Bond yields Short rates Currencies
(% change) (% point difference) (% point difference) (% change)
Oxford Baseline Forecast
(GSS weight = 40%)
China 7.9 0.5 -0.1 0.3
Eurozone 3.6 0.7 0.0 -3.1
UK 5.1 0.6 0.0 -2.5
Japan 3.5 0.0 0.0 -10.0
US 5.8 0.8 1.4 0.8
Le Pen victory sparks Eurozone crisis
(GSS weight = 5%)
China 4.9 -0.2 -0.5 0.7
Eurozone -18.9 1.0 0.1 -8.1
UK -1.7 0.2 -0.2 -5.7
Japan -2.7 -0.4 0.0 -8.9
US 3.9 0.0 0.7 2.4
Bond market sell-off
(GSS weights = 10%)
China 4.6 0.8 -1.5 -1.4
Eurozone -0.6 0.9 0.1 -3.9
UK 0.5 0.9 -0.1 -3.6
Japan 3.0 0.0 -0.3 -11.5
US 1.0 1.1 1.8 3.1
Tighter policies in China
(GSS weights = 10%)
China -3.3 -0.3 -1.7 -0.9
Eurozone -1.4 0.6 0.0 -2.2
UK 0.6 0.6 0.0 -1.7
Japan -2.2 -0.2 0.0 -9.0
US -1.2 0.4 0.7 1.0
Trump Presidency weighs on global
growth (GSS weight = 10%)
China -2.2 0.1 -0.4 -1.1
Eurozone -3.4 0.3 0.0 1.1
UK -0.8 0.2 -0.2 -1.7
Japan -3.6 -0.3 -0.1 -6.4
US -7.8 -0.7 -0.4 2.0
US growth surges amid Trump fiscal
stimulus (GSS weight = 25%)
China 14.1 0.7 0.3 -2.6
Eurozone 9.1 0.9 0.1 -3.9
UK 11.8 0.9 0.2 -3.1
Japan 8.3 0.0 0.0 -10.9
US 15.3 1.3 1.9 2.4
Asset performance under each scenario*
Note: Performance between Q1 2017 and Q1 2019. Equity indices used for each country are as follows: China - Shanghai Stock Price Index; Eurozone - Euro Stoxx 50; UK - FTSE All Share; Japan - Topix Composite; US -Wilshire 5000 Price Index. Bond yields are all based on 10 year government bonds. All currencies are based against the dollar except for the US which uses the Broad-Based index, and are calculated so that a positive number shows an appreciation and a negative number shows a depreciation. We report in brackets the weights attached to the baseline and different scenarios. GSS weights are constrained to sum to 100%. See our previous research for more information about scenario probabilities and how they can be used to construct a scenario-based distribution (see also Chart 1 on page 1).
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1 Baseline scenario
The Oxford Economics central forecast for global growth has edged down a little further since our previous
report. This section summarises the key features of the forecast (see also February’s World Economic
Prospects and Global macro chartbook); risks around this baseline are examined in subsequent sections.
Key features
The key features of the baseline scenario may be summarised as follows:
Global growth strengthens over the near term. With global indicators continuing to point to a pickup in
activity, Oxford Economics’ central forecast envisages world growth of 2.6% in 2017 and 2.9% in 2018,
0.1-0.2pp higher than envisaged three months ago and above the 2.2% pace experienced in 2016.
The US drives the upward revision to global growth: with a Trump fiscal stimulus package in
prospect, we expect 2.3% and 2.5% growth in the US in 2017 and 2018 (previously 2.0% and 1.9%).
In Europe, where no populist parties are assumed to enter government, further moderate growth
is expected. Following growth of 1.7% in 2016, the Eurozone economy is assumed to grow by 1.5% in
2017 and 2018 in the scenario, 0.1pp higher than envisaged three months ago. In the UK, GDP growth
slows to 1.6% in 2017 and 1.3% in 2018, with household spending power increasingly under pressure
from higher inflation.
The growth outlook for Japan has also improved. We now envisage growth of 1.2% in 2017 and 1.3%
in 2018, as a weaker currency and a gradually improving outlook for global trade facilitate a stronger
export performance over the next two years. Government investment is also set to grow strongly this year
and next, with around ¥6 trillion of the supplementary budget to finance infrastructure.
While China recorded growth of 6.7% in 2016, continued fast growth last year was achieved at the cost of
a further rise in leverage. Chinese growth is assumed to ease, but only gradually over the forecast
period, to 6.3% in 2017 and 5.9% in 2018.
Globally, higher inflation is in prospect. World inflation is expected to rise to 3.3% in 2017, compared
with 2.7% in 2016.
The more inflationary outlook partly reflects the direct impact of higher commodity prices, with oil
prices this year expected to be $2 higher at $52 per barrel than anticipated three months ago. But we
have also revised up our forecasts for core inflation in the US and Germany, at the same time as the
weaker yen increases inflationary pressure in Japan.
While US monetary policy remains supportive, a faster pace of Fed policy tightening is now
envisaged against the more reflationary backdrop. In our February forecast update, we raised the
expected level of the Federal funds rate by end-2018 to 1.7%, around 0.3pp higher than three months
ago, and we have since raised our US policy rate forecast further. Elsewhere, the Bank of Japan
maintains its ‘around 0%’ 10-year bond yield target.
US bond yields are likely to continue to rise. Consistent with further rate rises and higher inflation, our
baseline forecast sees US government bond yields edge up to 3.2% by the end of 2018, 0.6pp higher
than at the time of the previous report; yields also rise in other advanced economies, including in the
Eurozone and the UK.
In foreign exchange markets, the post-election dollar strength is also sustained. The euro falls to
parity with the US dollar by end-2017 and the yen-dollar exchange rate reaches 124 as US monetary
policy increasingly diverges from policy in the Eurozone and Japan.
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2014 2015 2016 2017 2018 2019 2020 2021
Real GDP
North America
United States 2.4 2.6 1.6 2.3 2.5 1.8 1.6 1.6
Canada 2.6 0.9 1.3 1.8 1.8 1.9 1.9 1.9
Europe
Eurozone 1.2 1.9 1.7 1.5 1.5 1.4 1.3 1.3
Germany 1.6 1.5 1.8 1.5 1.4 1.2 1.0 0.9
France 0.7 1.2 1.1 1.4 1.6 1.5 1.4 1.3
Italy 0.2 0.6 1.0 0.8 1.0 1.0 1.0 1.0
UK 3.1 2.2 2.0 1.6 1.3 1.6 2.1 2.3
EU27 1.6 2.1 1.9 1.6 1.6 1.5 1.5 1.5
Asia
Japan 0.2 1.3 1.0 1.2 1.3 0.8 -0.3 0.6
China 7.3 6.9 6.7 6.3 5.9 5.7 5.6 5.4
India 7.0 7.2 7.1 6.7 7.2 6.9 6.6 6.4
World 2.8 2.7 2.3 2.6 2.9 2.8 2.7 2.7
World 2005 PPPs 3.4 3.2 3.0 3.3 3.6 3.5 3.4 3.4
World trade 2.9 1.6 1.7 3.3 3.3 3.7 3.8 3.8
Inflation (CPI)
North America
United States 1.6 0.1 1.3 2.5 2.2 2.0 1.9 2.0
Canada 1.9 1.1 1.5 2.1 1.9 1.9 2.0 2.0
Europe
Eurozone 0.4 0.0 0.2 1.7 1.5 1.8 1.9 1.9
Germany 0.9 0.2 0.5 2.1 1.9 2.2 2.3 2.1
France 0.5 0.0 0.2 1.3 1.3 1.5 1.8 1.9
Italy 0.3 0.0 -0.1 1.3 1.3 1.8 1.9 1.8
UK 1.5 0.1 0.6 2.5 2.1 1.8 1.9 1.9
EU27 0.5 0.0 0.3 1.8 1.7 1.9 2.0 2.0
Asia
Japan 2.8 0.8 -0.1 0.6 0.8 1.2 1.8 1.1
China 2.0 1.4 2.0 2.4 2.5 2.8 2.8 2.8
India 6.6 4.9 4.9 4.7 5.4 5.2 5.0 4.7
World 3.2 2.8 2.7 3.3 3.1 3.1 3.1 3.0
Exchange Rates
US$ Effective 78.4 90.9 91.6 96.0 97.8 96.7 94.6 92.3
$/€ 1.33 1.11 1.11 1.04 1.01 1.04 1.07 1.10
¥/$ 105.9 121.0 108.8 118.7 125.4 127.0 126.7 125.0
Commodity Prices
Brent oil ($/bl) 99.0 52.4 43.5 52.0 52.0 58.9 67.5 75.2
Oxford Economics' Baseline Forecasts
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2 Le Pen victory sparks Eurozone crisis
In this scenario, we explore rising populism in the EU—a key risk highlighted in the latest Global
Risk Survey. We assume that Marine Le Pen, the right-wing populist candidate, is victorious in May’s
presidential elections in France and the Front National wins a majority in France’s parliamentary
elections the following month. With the French president given a mandate to renegotiate the terms of
France’s membership of the European Union and the Eurozone, Europe is plunged once more into
crisis.
In recent months, Le Pen has gained in the polls, as the range of presidential candidates has narrowed and
with Republican Francois Fillon facing formal investigation. A Le Pen victory still remains unlikely given
France’s two-round presidential election system. And, even in the event of a Le Pen victory, the economic
impact would be most likely be relatively benign, especially if the Front National fails to secure a
parliamentary majority. But, as this scenario explores, there is the risk of a more disruptive turn of events.
In the scenario, victories for Le Pen and the Front National spark fears of Eurozone breakup, prompting a
sharp sell-off in bond markets in France, but even more so in peripheral Eurozone economies. Equity
markets experience a sharp adverse reaction across the euro area, and the value of the euro falls
significantly. Credit conditions and investor confidence deteriorate, spilling over to the real economy.
Confidence is further shaken as Le Pen reiterates her campaign rhetoric on France’s relationship with the
EU. The new president demands greater barriers to trade and immigration, threatening to pull the country out
of the EU and Eurozone should her demands not be met. Le Pen’s brinkmanship weighs further on
investment in Europe, as uncertainty on the outcome of negotiations with the EU increases. The ECB
intervenes as a result, extending quantitative easing and commencing equity purchases.
Ultimately, Le Pen backs down, unwilling to take France out of the EU or Eurozone given the associated
economic and political cost. Economic conditions begin to normalise from early 2019. By then, the level of
GDP is already 1.2% below baseline in the Eurozone and 1.3% lower in France itself. But the global impact
is more muted, with world GDP down 0.6% overall.
We assign a 5% GSS weight to this scenario, which was quantified using the Oxford Global Economic
Model1.
Assumptions
The main assumptions for the scenario are as follows:
Marine Le Pen is elected in the French presidential election in May, and her party wins a majority
in the parliamentary elections in June. This gives her a strong mandate from the French people to
renegotiate the terms of France’s membership of the European Union and Eurozone.
A sharp selloff in French and peripheral bond markets leads to a spike in sovereign yields, with
the spread between French and German yields rising to around 225 basis points. Spreads rise by even
more in Italy and Spain and by roughly 650 basis points in Portugal. This causes a deterioration in credit
conditions and bank lending.
1 The Oxford Global Economic Model is a fully integrated global economic model used for forecasting and ‘what if’
analysis. The model now covers 80 economies in detail including the US, Japan, most EU economies, China, India and other leading emerging markets. It also gives headline indicators for another 30 economies. The model provides a rigorous and consistent structure for analysis and forecasting, and allows the implications of alternative global scenarios and policy developments to be readily analysed and quantified, taking into account all of the linkages between economies – through trade volumes and prices, oil and commodity prices, financial markets, capital flows and more.
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Eurozone equity prices fall by 28% peak to trough in 2017, compared with a peak-to-trough fall of
22% during the 2011/12 crisis.
The euro depreciates sharply, by around 10%, with the exchange rate falling to a low of 0.96 against
the dollar in 2017 Q3, before rallying slightly. This compares with a peak depreciation of 23% and a low
of 1.25 during the 2011/12 crisis. The euro begins to recover in value from Q1 2019, but remains 2.3%
weaker than baseline by 2021 as monetary policy diverges further with the US.
Le Pen drags Europe into lengthy negotiations on key pillars of the EU, such as free movement of
people and goods, threatening to put France’s membership to a referendum.
The fear of a costly French exit from the Eurozone results in a deterioration in Eurozone
confidence—equivalent to around two-thirds of the size of shock experienced during the 2011/12 crisis
and calibrated to be consistent with our expectation that, particularly in France, corporate and investor
sentiment would be more adversely affected than consumer confidence. As a result, firms delay
investment; inward FDI into the region also declines as external confidence in the region falters.
The UK is not immune, with activity knocked by a loss of confidence, weakness in its largest trading
partner and falls in equity prices. In addition, while the UK’s ultimate relationship with the EU is
unaffected by the crisis, concerns rise in the short term over the impact of Brexit against a weaker
economic backdrop and the potential for negotiations to prove more protracted than anticipated.
In France itself, Le Pen implements looser fiscal policy. Based on her manifesto pledges, we assume
an increase in French government investment equal to 1% of GDP, phased in over the five years of the
scenario, and the effective corporate tax rate is lowered 3pp from Q1 2018.
Le Pen also cuts annual non-EU migration to a level 130,000 below baseline. Combined with a
lowering of the retirement age to 60 as of Q1 2018, this leaves the labour supply 0.6% lower relative to
baseline by the end of the scenario, decreasing France’s potential output.
The ECB actively intervenes at two key stages of the scenario. Following the initial spike in yields,
the ECB confirms its readiness to intervene with additional policy support, tempering the spike in yields.
In Q4 2017, it then announces an extension of the existing of €60bn per month programme of asset
purchases beyond end-2017; given the shortage of available government bonds, equities are included
via an ETF purchase programme.
In Q1 2019, Le Pen backs down and household, business and market sentiment begin to recover.
Global scenarios service Q1 2017
13
Table 2.1: Transmission of ‘Le Pen victory sparks Eurozone crisis’ scenario
Real economy results
The real economy results of this scenario may be summarised as follows:
The countries that suffer the largest hit to GDP are:
Peripheral Eurozone economies, which see the largest increase in sovereign yields and the
greatest tightening of credit conditions as fears of Eurozone breakup increase.
France, which experiences a substantial shock to bond prices, sizeable equity price declines and a
hit to potential output as it reduces immigration, mitigated in the short term by looser fiscal policy.
The Eurozone in general, with Germany and other less directly exposed Eurozone member states
still adversely affected by weaker confidence, tighter credit conditions and slowing EU trade.
Less affected are economies with more limited trade and financial linkages to Europe and limited
reliance on global commodity markets.
The Eurozone suffers a 1.2% loss in the level of GDP by 2018, with growth slowing to 1.3% in 2017
and 0.5% in 2018. Despite subsequent recovery, the level of GDP is still 0.8% below baseline in 2021.
The US is more moderately affected. The impact of trade and financial spill overs, including a
strengthening dollar amid safe haven capital inflows, is partially offset by a slower pace of Fed tightening
and lower long term yields. US GDP is 0.5% below baseline by 2018 and only 0.2% lower by 2021.
Assumption Transmission Channel Impact
Le Pen introduces new fiscal program
Fiscal stimulus includes higher R&D and infrastructure
spending, a reduction of red tape,
corporate taxes and employer’s social security
contributions, as well as policies to boost household
purchasing power
Partial offset to decline in French consumption
and investment expenditure
Bond market stress ensues in France and peripheral
Eurozone economies, with yields spiking sharply
higher; credit conditions tighten
Attractiveness of domestic investment declines,
accompanied bya drop-off in inward FDI
Sell-off in European equities
Negative wealth effects and a higher cost of
capital further dampen business and consumer
spending
A weaker euro adds to inflationary pressures Higher inflation dampens consumer spending
Exports outside the EU are more competitive
Net trade improves as exporters benefit from
improved competitiveness, with imports
additionally dampened by weaker domestic
demand environment.
Inward migration from outside the EU is reduced in
France, but changes for other EU member states are
limited
Reduction in labour supply leads to lower
potential output in the France.
Outisde France, fiscal stimulus remains limitedNo boost to aggregate demand from looser
fiscal policy
Weaker consumer spending and business
investment due to confidence shock.
Reduced domestic demand; weaker
investment also weighs on potential growth
The euro depreciates sharply
Marine Le Pen wins the French
Presidential election, with Front
National then securing a majority in the
French parliament. Le Pen calls into
question the future of both the single
currency and single market.
Populist policies take hold in France
Investor sentiment deteriorates amid
heightened uncertainty over Europe's
future and propects for free trade
Business and consumer confidence is hit in France and
other Eurozone economies.
Global scenarios service Q1 2017
14
Japan is also only moderately affected, despite a strengthening yen. Japanese GDP is 0.5% below
baseline in 2018.
Emerging markets are less affected by trade and financial spill overs from the Eurozone.
Emerging market GDP is 0.3% below baseline in 2018, although some commodity exporters are hit
harder given the weaker world price of oil and more vulnerable economies experience heightened
balance sheet pressure in the face of a strengthening dollar.
Global growth slows to 2.5% in 2017 and 2018, compared with 2.6% and 2.9% in the baseline.
Figure 2.A: Cross-country GDP impact of ‘Le Pen victory sparks Eurozone crisis’ scenario
Commodity and asset market results
The commodity and asset market results of this scenario may be summarised as follows:
Commodity prices fall as a result of weaker global demand. The world price of oil is on average 11%
lower.
Central banks in advanced economies adopt a slower pace of monetary tightening, with the ECB
delaying its first rate hike to beyond 2021. The Fed slows the pace of its monetary tightening, with the
Federal funds rate averaging 0.75% in 2018, 0.7pp lower than the baseline. It then begins to accelerate
the pace of tightening, bringing the policy rate close to baseline levels by the end of the scenario.
Advanced-economy long term bond yields diverge. The Eurozone experiences an initial spike in
sovereign yields and, with public finances continuing to deteriorate in countries such as France and Italy,
risk premia remain higher even after the crisis has passed. But US and Japanese yields decline amid
safe haven inflows, falling 0.4 and 0.2pp below baseline on average.
Equity prices in advanced economies decline sharply, with the Eurozone periphery and France
most affected. Other Eurozone economies and the UK also experience sharp falls in equity prices. The
US and Japan see less severe falls, and are somewhat cushioned by declining long term yields.
Global scenarios service Q1 2017
15
Figure 2.B: Cross-country GDP impact of ‘Le Pen victory sparks Eurozone crisis’ scenario
-1.8 -1.6 -1.4 -1.2 -1 -0.8 -0.6 -0.4 -0.2 0
ItalySpain
PortugalGreeceFrance
MaltaEurozone
Slovak RepublicCzech Republic
PolandSloveniaHungary
NetherlandsFinlandIreland
BelgiumRussia
DenmarkSwedenAustria
RomaniaQatar
UKGermany
KuwaitEstoniaNorway
SingaporeSouth KoreaHong Kong
BahrainZambiaGhana
LuxembourgSaudi Arabia
MoroccoLithuania
JapanVenezuela
BrazilSwitzerland
MauritiusOman
South AfricaTunisia
USTaiwan
ChinaCroatia
BulgariaNigeria
CanadaNamibia
PeruIsrael
TurkeyKenya
ChileVietnamEcuador
IraqNew Zealand
AlgeriaIndonesia
IndiaArgentinaThailandUruguay
IranAustraliaUgandaMexico
UAECyprus
MalaysiaEgypt
ColombiaLatvia
PakistanPhilippines
Angola
Advanced
Emerging
World: GDP - Le Pen victory sparks Eurozone crisis
Source : Oxford Economics
% difference in level of GDP versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.1.
Global scenarios service Q1 2017
16
Figure 2.C: Cross-country bond yields impact of ‘Le Pen victory sparks Eurozone crisis’ scenario
-1 -0.5 0 0.5 1 1.5 2
Mexico
South Africa
Malaysia
South Korea
Denmark
Saudi Arabia
Taiwan
US
Hong Kong
Australia
Philippines
Canada
Thailand
China
India
Singapore
Chile
Indonesia
UK
Argentina
Japan
Bulgaria
Switzerland
Brazil
Sweden
Finland
Romania
Croatia
Netherlands
Norway
Turkey
Russia
Slovak Republic
Germany
Czech Republic
Austria
Belgium
Ireland
Hungary
Poland
Eurozone
France
Greece
Spain
Portugal
Italy
Advanced
Emerging
World: Long-term government bond yields - Le Pen victory sparks Eurozone crisis
Source : Oxford Economics
% difference in level of long-term government bond yields versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.2.
Global scenarios service Q1 2017
17
Chart 2.1: World GDP Chart 2.2: French GDP
-3
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-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
World: GDP% year
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
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-1
0
1
2
3
4
2007 2009 2011 2013 2015 2017 2019 2021
France: GDP% year
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Chart 2.3: Eurozone GDP Chart 2.4: Eurozone investment
-6
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-4
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-2
-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: GDP% year
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
-15
-10
-5
0
5
10
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: Investment% year
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Chart 2.5: France government debt to GDP ratio Chart 2.6: Eurozone inflation
0
20
40
60
80
100
120
2007 2009 2011 2013 2015 2017 2019 2021
France: Government debt to GDP ratio %
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
-1
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: Inflation% year
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Global scenarios service Q1 2017
18
0
5
10
15
20
25
30
35
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: Quantitative easing% of GDP
Le Pen victory sparks Eurozone crisis
Forecast
Source : Oxford Economics/Haver Analytics
Baseline
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: Policy rate%
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Chart 2.9: Eurozone exchange rate Chart 2.10: Eurozone equity prices
Chart 2.7: Eurozone quantitative easing Chart 2.8: Eurozone policy rate
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2.2
2007 2009 2011 2013 2015 2017 2019 2021
UK: Exchange rate$/£
Baseline
Forecast
Source : Oxford Economics/Haver Analytics
Depreciation
Le Pen victory sparks Eurozone crisis
Chart 2.11: UK exchange rate Chart 2.12: Eurozone bond yields (selected countries)
0.6
0.8
1
1.2
1.4
1.6
1.8
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: $/€$/€
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Depreciation
-2
0
2
4
6
8
10
2016 2017 2018 2019 2020 2021
Greece
Germany
Portugual
Spain
Italy
France
10-year government bond yields%
Source : Oxford Economics/Haver Analytics
Le Pen victory
Le Penbacks down
1500
2000
2500
3000
3500
4000
4500
5000
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: Equity prices1991 = 100
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Global scenarios service Q1 2017
19
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: Policy rate%
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: 10-year government bond yields%
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Chart 2.13: US policy rate Chart 2.14: US bond yields
-8
-6
-4
-2
0
2
4
6
8
10
12
2007 2009 2011 2013 2015 2017 2019 2021
Current account balances% of GDP
Germany
Forecast
Source : Oxford Economics/Haver Analytics
Japan
US
China (4-quarter moving average)
Baseline
Le Pen victory sparks Eurozone crisis
0
50
100
150
200
250
2007 2009 2011 2013 2015 2017 2019 2021
World: Non-oil commodity prices2005 = 100
Baseline
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Forecast
Chart 2.15: Current account balances Chart 2.16: Non-oil commodity prices
Chart 2.17: World oil prices Chart 2.18: World inflation
0
20
40
60
80
100
120
140
160
2007 2009 2011 2013 2015 2017 2019 2021
World oil prices$/barrel
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
0
1
2
3
4
5
6
7
8
2007 2009 2011 2013 2015 2017 2019 2021
World: CPI% year
Baseline
Forecast
Le Pen victory sparks Eurozone crisis
Source : Oxford Economics/Haver Analytics
Global scenarios service Q1 2017
20
3 Bond market sell-off
The surge in bond yields and sustained dollar strength since the US presidential election have raised
concerns that tightening financial conditions could choke the US recovery before the expected fiscal
stimulus comes to pass. Our previous analysis suggests that these fears are overdone for now, but
that risks are likely to materialise if the bond rout continues. This scenario explores these risks.
In the scenario, inflationary pressures prompt the Fed to raise rates more quickly, hiking four times during
2017. With investors reassessing the future pace of tightening, and term premia edging up from historically
low levels, US Treasury yields surge higher. The shock spills over to global markets: bond yields spike up,
the dollar makes further gains and world equity prices fall.
The economic impact varies across countries. In the US, credit conditions tighten as short- and long-term
rates rise, weighing on domestic demand. But the shock is buffered as the Fed slows its pace of tightening
from 2018 and fiscal stimulus comes on stream. Other advanced economies – while facing higher yields and
a weaker trade outlook – are also able to cushion the blow by keeping policy rates lower for longer.
But many emerging market economies are forced to raise rates in an attempt to staunch capital outflows and
defend their currencies. Worst hit are those, such as Malaysia and Venezuela, that are vulnerable to a
stronger dollar and weaker commodity prices.
We assign a GSS weight of 10% to this scenario.
Assumptions
The main assumptions for the scenario are as follows:
Inflation rises above baseline during 2017 in the US in particular, but more generally across
advanced economies. Amid mounting inflationary pressures, US PCE inflation unexpectedly rises
above the Fed’s 2% target.
Against this background, the Fed implements four 25 basis point rate hikes during 2017, a faster
pace of tightening than assumed in the baseline.
US-Treasury yields climb higher amid rising inflation expectations, rising term premia and
investor reassessment of the Fed’s likely reaction to higher inflation. Yields reach 4% during Q4
2017 (compared to 2.8% in the baseline).
Dollar strength continues, with the broad based effective dollar exchange rate strengthening by
around 7% during the year to Q4 2017 (more than twice the appreciation assumed in the baseline).
Compared with previous tightening cycles over the past 60 years, this sits above the average peak rise
(4.2%) but below the appreciations seen during the tightening cycles of 1980-81 (15.2%) and 1984
(8.5%) when fiscal policy was also loosened significantly.
The attractiveness of emerging market assets declines as the US dollar strengthens across the
board and US interest rates increase. Capital flows from emerging markets to the US, amid investor
concerns over the impact on EM balance sheets and less incentive to ‘hunt for yield’.
In the US, the S&P 500 index is assumed to fall by 8% peak to trough, in line with previous
episodes of policy tightening.
Global scenarios service Q1 2017
21
Table 3.1: Transmission of ‘Bond market sell-off’ scenario
Real economy results
The real economy results of this scenario may be summarised as follows:
Overall, world GDP growth slows to 2.2% in 2018 (compared with 2.9% in the baseline) but begins to
recover thereafter, rising to 2.5% in 2019 (2.8% in the baseline). In level terms, world output is almost
1% below baseline by 2018.
The countries that suffer the largest hits to GDP are:
Vulnerable EMs, which are adversely affected by dollar strength and higher US interest rates.
Many experience capital outflows and greater currency depreciation than in the baseline,
forcing many to raise interest rates. The level of GDP in Argentina, Brazil, Mexico, Turkey and
Venezuela is roughly 1.7% below baseline in 2018.
The US, as domestic demand is hit by tightening credit conditions amid rising rates and falling
equity prices, at the same time as export recovery is choked off by the resurgent dollar.
Overall, the level of US GDP is around 1% below baseline in 2018 and ends the five-year
forecast horizon 0.7% lower.
Commodity producers, as the global price of oil falls on the back of weaker demand and a
stronger dollar.
Assumption Transmission Channel Impact
US bond market rout continues amid
increased concerns over US
inflationary pressures, rising term
premia and investor reassessment
of the Fed's likely reaction to higher
inflation.
With inflation rising above target,
the Fed proceeds with four 25bp
rate hikes during 2017, a faster pace
of tightening than assumed in the
baseline
A stronger dollar weighs on US
competitivenessUS net trade is adversely affected
Downwards pressure on global commodity
prices Weaker growth for commodity exporters
Capital flows from emerging markets to the
US, amid investor concerns over the impact on
EM balance sheets and reduced incentives to
'hunt for yield'. Policy rates rise in more
vulnerable EMs amid rising inflationary
pressures.
Tighter credit conditions drag on EM growth
Lower path for global equities amid lower
confidence.
Hit to business and consumer spending,
reflecting negative wealth effects, rising
funding costs and greater uncertainty
As the US economy shows signs of
slowing, the Fed slows the pace of
policy normalisation
US bond yields fall back and the dollar softensThe shock to the US and global economy
gradually dissipates
Weaker market sentiment and
tightening financial conditions
Bank lending levels fall backLower lending levels acts as a further drag on
consumer and corporate spending
Higher short-term and long-term rates weigh
on housing and other interest rate-sensitive
sectors of the economy
US domestic demand weakens, reflecting
softness in both consumer spending and
investment
Dollar strength continues
Global scenarios service Q1 2017
22
Less affected are economies with more limited trade and financial linkages to the US and limited
reliance on global commodity markets.
In the US, growth slows below baseline to 2% in 2017 and 1.8% in 2018. Growth rates recover
from 2019, against a slower pace of Fed tightening and the implementation of fiscal stimulus.
European growth slows. The level of GDP in the Eurozone and the UK is roughly 1% lower than
baseline in 2018, as higher yields and weaker sentiment weigh on spending and global trade slows.
Emerging markets are more vulnerable. The stronger dollar prompts many central banks to raise
policy rates in an attempt to staunch capital outflows and defend their currencies. Among those hardest
hit are Argentina and Venezuela, which see growth slowing in 2018 to 2.5% and 0.9% respectively,
compared with 3.8% and 2.2% in the baseline.
While global inflation surprises on the upside during the early part of the forecast, it falls below
baseline during the latter years as weaker activity is reflected in lower prices. World inflation is 2.8%
in 2020 and 2021 (compared with 3.1% and 3.0% in the baseline).
Figure 3.A: Cross-country GDP impact of ‘Bond market sell-off’ scenario
Global scenarios service Q1 2017
23
Commodity and asset market results
The commodity and asset market results of this scenario may be summarised as follows:
Global energy prices are hit by weaker global demand and the impact of a stronger dollar. The
world oil price is around 10% below baseline in 2018. At the same time, the price of gold rises, peaking at
5% above baseline levels, before moving back towards baseline as the global shock fades.
Relative to the baseline, there is a greater depreciation of emerging market currencies as
investors move away from emerging markets. The Turkish lira and Mexican peso are hit particularly
hard. The Chinese authorities continue to take various measures to stem capital outflows in order to keep
the CNY relatively stable against the US dollar.
Advanced-economy government bond yields rise sharply, with US Treasury yields over 100 basis
points above baseline at the end of 2017. As the global shock to the US and global economy gradually
dissipates, yields generally move back towards baseline levels.
Policy responses vary across regions. Advanced economies are able to slow or postpone policy
tightening in order to cushion the shock, while emerging markets are mostly forced to hike rates to
defend their currencies.
Global equity prices fall on the back of weaker US equities and some contagion to other economies.
The MSCI share price index falls by 8% from peak to trough during 2017, before recovering.
Global scenarios service Q1 2017
24
Figure 3.B: Cross-country GDP impact of ‘Bond market sell-off’ scenario
-1.8 -1.6 -1.4 -1.2 -1 -0.8 -0.6 -0.4 -0.2 0
Venezuela
Turkey
Brazil
Argentina
Mexico
Qatar
South Africa
Malaysia
Russia
Chile
Kuwait
Oman
UAE
Singapore
Taiwan
China
India
Thailand
Indonesia
Hong Kong
South Korea
Bahrain
Ireland
Netherlands
Finland
Portugal
Greece
UK
Italy
Malta
Denmark
US
Czech Republic
Eurozone
Spain
Slovak Republic
Saudi Arabia
Belgium
Canada
Luxembourg
Romania
France
Germany
Philippines
Norway
Austria
Poland
Sweden
Estonia
Slovenia
Croatia
Hungary
Lithuania
Zambia
Latvia
Namibia
Vietnam
Uruguay
Australia
Switzerland
Morocco
Iran
Iraq
Peru
Pakistan
Bulgaria
Angola
Egypt
Uganda
Kenya
Algeria
Japan
Ghana
Cyprus
Nigeria
New Zealand
Ecuador
Mauritius
Tunisia
Israel
Colombia
Advanced
Emerging
World: GDP - Bond market sell-off
Source : Oxford Economics
% difference in level of GDP versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.1.
Global scenarios service Q1 2017
25
Figure 3.C: Cross-country bond yields ‘Bond market sell-off’ scenario
0 0.5 1 1.5 2 2.5
Switzerland
Japan
Denmark
Australia
Sweden
Finland
Netherlands
Austria
Norway
Czech Republic
France
Bulgaria
Germany
Belgium
Slovak Republic
Saudi Arabia
Singapore
Eurozone
Poland
Canada
Ireland
UK
Spain
China
Taiwan
Hong Kong
Romania
Italy
South Korea
Thailand
Croatia
US
India
Philippines
Portugal
Indonesia
Brazil
Hungary
Chile
South Africa
Mexico
Greece
Turkey
Russia
Malaysia
Argentina
Advanced
Emerging
World: Long-term government bond yields - Bond market sell-off
Source : Oxford Economics
% difference in level of long-term government bond yields versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.2.
Global scenarios service Q1 2017
26
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: 10-year government bond yields%
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
Chart 3.1: World GDP Chart 3.2: US GDP
Chart 7.8: US interbank rates
Chart 3.3: US inflation Chart 3.4: US policy rate
Chart 3.5: US equity prices Chart 3.6: US bond yields
-3
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-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
World: GDP% year
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
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-4
-3
-2
-1
0
1
2
3
4
2007 2009 2011 2013 2015 2017 2019 2021
US: GDP% year
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
-2
-1
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: CPI% year
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: Policy rate%
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
0
500
1000
1500
2000
2500
3000
2007 2009 2011 2013 2015 2017 2019 2021
US: Equity prices
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
S&P 500 composite index
Bond market sell-off
Global scenarios service Q1 2017
27
0
1
2
3
4
5
6
7
8
9
2007 2009 2011 2013 2015 2017 2019 2021
US: Corporate borrowing rate %
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
-0.5
0
0.5
1
1.5
2
2007 2009 2011 2013 2015 2017 2019 2021
Japan: 10-year government bond yields%
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: 10-year government bond yields%
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007 2009 2011 2013 2015 2017 2019 2021
Brazil: Exchange rateReal/$
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
Depreciation
0
20
40
60
80
100
120
140
2007 2009 2011 2013 2015 2017 2019 2021
Japan: Exchange rateYen/$
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
Depreciation
Chart 3.9: US corporate borrowing rate Chart 3.10: US effective exchange rate
Chart 3.11: Japan exchange rate Chart 3.12: Brazil exchange rate
0
20
40
60
80
100
120
140
160
2007 2009 2011 2013 2015 2017 2019 2021
US: Effective exchange rate1997Q1 = 100
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
Chart 3.7: Eurozone bond yields Chart 3.8: Japan bond yields
Chart 7.8: US interbank rates
Global scenarios service Q1 2017
28
0
1
2
3
4
5
6
7
8
2007 2009 2011 2013 2015 2017 2019 2021
World: CPI% year
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
Chart 3.15: Current account balances Chart 3.16: Non-oil commodity prices
Chart 3.17: World oil prices Chart 3.18: World inflation
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
Bond market sell-off
Forecast
Baseline
% year
Eurozone: GDP
Source : Oxford Economics/Haver Analytics
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
2007 2009 2011 2013 2015 2017 2019 2021
Bond market sell-off
Forecast
Baseline
% year
Emerging Market: GDP
Source : Oxford Economics/Haver Analytics
-8
-6
-4
-2
0
2
4
6
8
10
12
2007 2009 2011 2013 2015 2017 2019 2021
Current account balances% of GDP
Germany
Forecast
Source : Oxford Economics/Haver Analytics
Japan
US
China (4-quarter moving average)
Baseline
Bond market sell-off
0
50
100
150
200
250
2007 2009 2011 2013 2015 2017 2019 2021
World: Non-oil commodity prices2005 = 100
Baseline
Bond market sell-off
Source : Oxford Economics/Haver Analytics
Forecast
0
20
40
60
80
100
120
140
160
2007 2009 2011 2013 2015 2017 2019 2021
World oil price$/barrel
Baseline
Forecast
Bond market sell-off
Source : Oxford Economics/Haver Analytics
Chart 3.13: Eurozone GDP Chart 3.14: Emerging market GDP
Chart 7.8: US interbank rates
Global scenarios service Q1 2017
29
4 Tighter policies in China
While China comfortably met the target of at least 6.5% GDP growth in 2016, a big question for 2017
and beyond is whether the authorities will continue to aim for overly ambitious GDP growth targets
or start to rein in credit to put growth on a more sustainable footing. In this scenario, we consider the
latter possibility.
Under this scenario, China’s policymakers recognise the unsustainability of the current debt trajectory; they
decide to lower their overly ambitious growth targets and they rein in the expansion of credit, supported by
structural reforms to bolster the role of equity financing and the efficiency of the financial sector. Credit
growth is gradually reduced and the ratio of credit to GDP peaks in late 2021. Investment spending is hit in
particular. But, in the absence of abrupt property, equity or FX corrections, spill-overs to the rest of the world
are contained compared with a more adverse scenario.
The overall result is a delay to the anticipated pickup in the pace of global economic expansion. World GDP
growth remains subdued at 2.4% in 2017 and 2.2% in 2018, compared with the baseline rise to 2.6% and
2.9% respectively. But there are marked differences in the impact on GDP across countries. Those that
suffer most are China itself, commodity producers such as Russia and Venezuela, and China’s Asian
neighbours such as Hong Kong and Singapore.
In financial markets, Asian and commodity-exporters’ currencies depreciate, owing to the fall in oil and other
commodity prices and slower growth in the Chinese economy. Advanced-economy government bond yields
weaken as policy rates remain low for longer. And global equity prices weaken, remaining depressed
throughout the forecast period.
We attach a GSS weight of 10% weight to this scenario.
Assumptions
The main assumptions for the scenario are as follows:
China’s credit-to-GDP ratio peaks in late 2021, reflecting the authorities’ shift in policy away from
overly ambitious growth targets towards reining in leverage. Investment spending slows accordingly.
Financial reforms are implemented to dampen the impact, including measures to improve the
allocation of capital and increase the contribution of equity financing.
Rates of return and non-performing loans both rise. Tighter credit conditions reduce financing of
companies and projects with low profitability. But they also weaken the ability of indebted companies to
roll-over debt, leading to higher NPLs.
The announcement of the new Chinese policy stance causes some initial market disruption. Credit
spreads begin to widen in emerging markets, as capital flows into safe-haven assets, and credit
conditions tighten slightly in advanced economies. However, financial conditions then normalise as it
becomes clear that China can avoid a hard landing of its economy.
Global scenarios service Q1 2017
30
Table 4.1: Transmission of ‘Tighter policies in China’ scenario
Real economy results
The real economy results of this scenario may be summarised as follows:
Global activity is moderately impacted. World GDP growth remains subdued at 2.4% in 2017 and
2.2% in 2018, compared with the baseline rise to 2.6% and 2.9% respectively.
The countries that suffer the largest hit to GDP are:
China itself, as investment decelerates sharply.
Commodity producers, such as Russia and Venezuela, as oil and other commodity prices
weaken at the same time as global trade growth slows.
China’s Asian neighbours, such as Hong Kong and Singapore, as global trade growth slows.
Less affected are advanced economies with limited reliance on Asian trading partners or
commodity markets.
As a result, growth in China slows steadily, to 5.7% in 2017, 4.6% in 2018 and, with investment growth
dropping below 1% from 2018, remains at or below 5% thereafter. By the end of the decade, output is
almost 4% below baseline, depressing CPI inflation and weakening earnings growth further.
Across emerging markets as a whole, growth slows to 3.7% in 2017 and 3.5% in 2018 (from 4.1%
and 4.5% respectively) and remains around 4% in the latter part of the forecast.
Among advanced economies, Eurozone recovery stalls. GDP growth eases to 1.3% in 2017 and 0.8%
in 2018. In the US, growth also slows, to 2.2% in 2017 and 2.0% in 2018; growth recovers at the end of
2019, supported in part by a more sluggish pace of policy tightening than in the baseline (see below).
Assumption Transmission Channel Impact
Shift in policy in China away from
current growth targetsReduction in debt financing Slower investment growth in China
Structural reforms in China,
including improvements in the
allocation of capital
Bank balance sheets strengthen; increased
equity financing
Chinese investment becomes more
sustainable
Initial risk-off reaction to Chinese
policies
Increased credit spreads in emerging markets
and slightly tighter credit conditions in
advanced economies
Weaker consumption and investment growth
globally in the near term
Global scenarios service Q1 2017
31
Figure 4.A: Cross-country GDP impact of ‘Tighter policies in China’ scenario
Commodity and asset market results
The commodity and asset market results of this scenario may be summarised as follows:
Commodity prices are hit in the short term following the announcement of the policy shift in China. Oil
prices are around 10% below baseline at the end of the scenario; metal prices are similarly affected.
With oil prices lower, Venezuela’s capacity to pay deteriorates sufficiently to force a default on
international bonds by 2019 in the absence of Chinese agreement to restructure its bilateral loans again
(currently under a two-year grace period).
Currencies of commodity producers and Asian economies depreciate the most in the near term,
although movements are limited. The Chinese authorities keep the CNY relatively stable against the US
dollar, in order to dampen global spillovers and stem capital outflows.
Advanced-economy government bond yields weaken as policy rates remain low for longer. While
the Fed still hikes rates this year, as global demand weakens it then keeps the Fed funds rate below 1%
until mid-2018. The ECB keeps policy rates low for longer and only begins raising rates in 2021.
Global equity prices weaken. The MSCI world share price index falls around 5% below baseline in
2018; with global demand and earnings subdued, stock markets remain below baseline throughout the
forecast.
Global scenarios service Q1 2017
32
Figure 4.B: Cross-country GDP impact of ‘Tighter policies in China’ scenario
-2 -1.8 -1.6 -1.4 -1.2 -1 -0.8 -0.6 -0.4 -0.2 0
ChinaHong Kong
ChileTaiwan
VenezuelaIndonesiaAustralia
BrazilMalaysia
SingaporeTurkeyQatar
RussiaCanada
PhilippinesArgentina
South AfricaSouth Korea
JapanVietnamMexico
ThailandKenya
LuxembourgOman
UgandaMalta
NetherlandsEstonia
MauritiusDenmarkHungary
CyprusSlovenia
GhanaZambia
LatviaKuwait
LithuaniaUruguay
Saudi ArabiaUAE
PakistanBahrain
GermanyNigeria
SpainBelgiumFinland
ItalySweden
EurozoneTunisiaAngola
IsraelPolandGreeceAustria
IndiaIreland
NamibiaPortugalCroatia
ColombiaNew Zealand
NorwaySlovak Republic
FranceEgypt
EcuadorUS
SwitzerlandUK
RomaniaBulgaria
Czech RepublicPeruIran
MoroccoIraq
Algeria
Advanced
Emerging
World: GDP - Tighter policies in China
Source : Oxford Economics
% difference in level of GDP versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.1.
Global scenarios service Q1 2017
33
Figure 4.C: Cross-country exchange rate impact of ‘Tighter policies in China’ scenario
-3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5
Brazil
Chile
Russia
Norway
India
China
Australia
Argentina
Singapore
Canada
Taiwan
Indonesia
South Africa
Malaysia
South Korea
Thailand
Turkey
Philippines
Hungary
Hong Kong
US
UAE
Saudi Arabia
Czech Republic
Mexico
Croatia
Romania
Switzerland
Poland
Sweden
Denmark
Japan
UK
Eurozone
Bulgaria
Advanced
Emerging
World: US dollar exchange rates - Tighter policies in China
Source : Oxford Economics
Depreciation
% difference in level of US dollar exchange rates versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.2.
Global scenarios service Q1 2017
34
-30
-20
-10
0
10
20
30
40
50
2007 2009 2011 2013 2015 2017 2019 2021
China: Exports
Baseline
Forecast
Tighter policies in China
% year
Source : Oxford Economics/Haver Analytics
0
2
4
6
8
10
12
14
16
2007 2009 2011 2013 2015 2017 2019 2021
China: GDP
Baseline
Forecast
Tighter policies in China weigh
on global growth
% year
Source : Oxford Economics/Haver Analytics
0
5
10
15
20
25
30
2007 2009 2011 2013 2015 2017 2019 2021
China: Investment
Baseline Forecast
Tighter policies in China
% year
Source : Oxford Economics/Haver Analytics
-3
-2
-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
World: GDP
Baseline
Forecast
Tighter policies in China
% year
Source : Oxford Economics/Haver Analytics
-5
-4
-3
-2
-1
0
1
2
3
4
2007 2009 2011 2013 2015 2017 2019 2021
US: GDP
Baseline
Forecast
Tighter policies in China
% year
Source : Oxford Economics/Haver Analytics
Chart 4.1: Chinese Investment Chart 4.2: Chinese GDP
Chart 7.8: US interbank rates
Chart 4.3: Chinese exports Chart 4.4: Hong Kong exports
Chart 4.5: US GDP Chart 4.6: World GDP
-25
-20
-15
-10
-5
0
5
10
15
20
25
2007 2009 2011 2013 2015 2017 2019 2021
Hong Kong: Exports
Baseline
Forecast
Tighter policies in China
% year
Source : Oxford Economics/Haver Analytics
Global scenarios service Q1 2017
35
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007 2009 2011 2013 2015 2017 2019 2021
Emerging market: Risk premium
Baseline
Forecast
Tighter policies in China
%
Source : Oxford Economics/Haver Analytics
-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
Eurozone: Policy rate%
Baseline
Forecast
Tighter policies in China
Source : Oxford Economics/Haver Analytics
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: Policy rate%
Baseline
Forecast
Tighter policies in China
Source : Oxford Economics/Haver Analytics
20
30
40
50
60
70
80
2007 2009 2011 2013 2015 2017 2019 2021
Russia: Ruble/$
Baseline
Forecast
Tighter policies in China
Ruble/$
Source : Oxford Economics/Haver Analytics
Depreciation
1
1.5
2
2.5
3
3.5
4
4.5
2007 2009 2011 2013 2015 2017 2019 2021
Brazil: Real/$
Baseline
Forecast
Tighter policies in China
Real/$
Source : Oxford Economics/Haver Analytics
Depreciation
Chart 4.9: Emerging market interest rates Chart 4.10: Chinese exchange rate
Chart 4.11: Brazilian exchange rate Chart 4.12: Russian exchange rate
5
5.5
6
6.5
7
7.5
8
2007 2009 2011 2013 2015 2017 2019 2021
China: Yuan/$
Baseline
Forecast
Tighter policies in China
Yuan/$
Source : Oxford Economics/Haver Analytics
Depreciation
Chart 4.7: US policy rate Chart 4.8: Eurozone policy rate
Global scenarios service Q1 2017
36
-8
-6
-4
-2
0
2
4
6
8
10
12
2007 2009 2011 2013 2015 2017 2019 2021
Current account balances% of GDP
Germany
Forecast
Source : Oxford Economics/Haver Analytics
Japan
US
China (4-quarter moving average)
Tighter policies in China
Baseline
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: 10-Year government bond yields%
Baseline
Forecast
Tighter policies in China
Source : Oxford Economics/Haver Analytics
0
500
1000
1500
2000
2500
3000
2007 2009 2011 2013 2015 2017 2019 2021
US: EquityS&P 500 composite index
Baseline
Forecast
Tighter policies in China
Source : Oxford Economics/Haver Analytics
0
1
2
3
4
5
6
7
8
2007 2009 2011 2013 2015 2017 2019 2021
World: CPI% year
Baseline
Forecast
Tighter policies in China
Source : Oxford Economics/Haver Analytics
0
20
40
60
80
100
120
140
160
2007 2009 2011 2013 2015 2017 2019 2021
World oil price$/barrel
Baseline
Forecast
Tighter policies in China
Source : Oxford Economics/Haver Analytics
Chart 4.15: Current account balances Chart 4.16: Non-oil commodity prices
Chart 4.17: World oil prices Chart 4.18: World inflation
0
50
100
150
200
250
2007 2009 2011 2013 2015 2017 2019 2021
World: Non-oil commodity prices2005 = 100
Baseline
Tighter policies in China
Source : Oxford Economics/Haver Analytics
Forecast
Chart 4.13: US equity prices Chart 4.14: US bond yields
Global scenarios service Q1 2017
37
5 Trump presidency weighs on global growth
In our adverse Trump scenario, we assume that, the new president adopts a highly protectionist and
isolationist stance, fails to implement a significant fiscal stimulus package and proceeds with
immigration curbs and deportations that result in substantial labour force declines. Against a
backdrop of heightened uncertainty, the US and global economies are badly shaken.
On trade, Trump proceeds with his proposed 35% and 45% trade tariffs on Mexico and China in H2 2017
and maintains them throughout his presidency; further tariffs are also imposed on South Korea and Taiwan.
These trading partners retaliate by matching the tariffs imposed by the US.
Trump’s refusal to negotiate on his extreme trade proposals means that the Republicans maintain a deficit-
neutral stance on the budget. The resulting fiscal package involves $500 billion of tax cuts over the next ten
years—a less substantial, more regressive policy change than in the baseline and matched by offsetting
revenues and spending cuts. The $200 billion infrastructure stimulus assumed in our baseline forecast also
fails to materialise.
The economic and market implications are profound. By late-2019, the US economy has entered recession;
by 2021 the economy is 6% smaller than in the baseline forecast. As the impact of Trump’s policies spills
over, the global recovery is undermined, with world growth only returning to baseline at the very end of the
five-year forecast. Commodity and asset market impacts are similarly marked, with oil prices weaker and
substantial movements in both policy rates and yields.
We assign a GSS weight of 10% to this scenario.
Assumptions
The main assumptions of this scenario are as follows:
Business and consumer confidence are dented both in the US and globally. We assume confidence
effects roughly equal to 10% of the scale experienced during the global financial crisis, which gradually
fade over the course of President-elect Trump’s administration.
Global financial markets show some modest safe-haven flight, with emerging market currencies
weakening and the euro and yen strengthening against the dollar relative to the baseline over the
course of 2017.
We have not incorporated the Border Tax Adjustment proposal contained in House Ways & Means
Committee Chairman Brady’s tax blueprint.
But, from Q3 2017, we assume that the US imposes 45% and 35% tariffs on Chinese and Mexican
merchandise goods respectively – and then, as US consumers switch away from higher-priced Mexican
and Chinese imports, the US raises 20% tariffs on South Korea and Taiwan.
Mexico, China, South Korea and Taiwan all retaliate with similar tariffs on US exports.
With the Republicans maintaining a deficit-neutral stance, the final fiscal package is more limited than
assumed in the baseline-—$500 billion of tax cuts over the next ten years, with offsetting revenues and
back-loaded spending cuts. The composition of the tax cuts is also more regressive than assumed in the
baseline. In addition, the $200 billion infrastructure stimulus assumed in our baseline forecast fails
to materialise.
Deportation of illegal immigrants and curbs on legal immigrants result in a marked decline in the
US labour force. Towards the end of the five-year forecast, after the end of the four-year presidential
Global scenarios service Q1 2017
38
term, labour supply growth is assumed to rise back towards its baseline rate. But, by then, the US labour
force is already nearly 3 million below its baseline level.
Table 5.1: Transmission of ‘Trump presidency weighs on global growth’ scenario
Real economy results
The real economy results of this scenario may be summarised as follows:
The countries that suffer the largest hit to GDP are:
The US itself, as domestic demand weakens amid heightened uncertainty, slowing population
growth, rising consumer price inflation and increasingly contractionary fiscal effects, at the same time
as exports falter under the weight of increased trade barriers and slowing global trade.
Mexico and China, as exports decline in the face of US tariffs. This weighs on employment and,
with investment scaled back, domestic demand.
Asian economies more generally, reflecting increased concerns that the US might impose tariff
hikes more widely and the impact on global trade of the decline in trade between the world’s two
largest economies.
Commodity exporters, albeit to a lesser extent as global demand weakness weighs on oil and other
commodity prices.
While all countries are adversely affected, impacts are generally more muted among commodity
importers in advanced economies.
In the US, growth slows below baseline in 2017 (to 1.6%) and 2018 (1.0%). Initial confidence and
market impacts weigh modestly on growth, offset to some extent by weaker imports, the implementation
of tax cuts and the maintenance by the Fed of an accommodative policy stance.
But US growth slows more severely in the latter part of the forecast. Retaliatory tariffs from China
and Mexico eventually take a harsh toll on US export growth, and aggregate demand (and supply) is lost
Assumption Transmission Channel Impact
More protectionist trade policiesLower exports for tariffed countries, as well as
other countries as global trade slows.
Lower aggregate demand. Higher inflation in
countries which establish tariffs
Contractionary US fiscal policy compared to the
baseline, with tax cuts half the size of our central
assumption and the assumed infrastructural stimulus
failing to materialise
Dampened US domestic demand; knock-on
impact on other countries' export demandLower aggregate demand
Greater reduction in US illegal immigration
Increase in population/labour force in
countries recieiving returning migrants;
reduction in US population/labour force
Higher domestic demand and potential growth
in countries receiving returning migrants;
reduced domestic demand and potential
growth in US
Domestic and global confidence shock
Investment and consumption decisions
postponed, exacerbated by impact of lower
equity prices on wealth and cost of capital
Lower domestic demand. Weaker supply
growth as capital accumulation slows
Deterioration in market sentimentLower US and global equity prices; higher
sovereign spreads in EMs affected by tariffs
Dampened business and consumer spending,
reflecting negative wealth effects and rising
cost of borrowing as cost of capital rises and
credit conditions tighten more generally
Reduced openness weighs on productivity
Weaker productivity growth in countries
adopting a less open trade policy, reflecting a
deterioration in resource allocation, weaker
competition and reduced access for domestic
producers to intermediate inputs
Slightly weaker growth in potential supply,
with greater inflationary pressure for a given
level of demand
Global scenarios service Q1 2017
39
due to the deportation of illegal immigrants. The phasing in of fiscal expenditure cuts also damages
consumer spending. The impact is exacerbated by the inflationary effects of higher import costs.
Reflecting this combination of factors, the US economy fails to expand in 2019 and 2020. While growth
then recovers gradually, the level of US GDP is 6% below baseline in 2021.
The imposition of tariffs damages exports and investment in China and Mexico – and to a lesser
extent South Korea and Taiwan. Chinese growth falls below 5% in 2018 and 2019.
The imposition of tariffs also has important implications for inflation, particularly in Mexico. Mexican
inflation spikes in the near-term, reflecting higher import tariffs and currency depreciation; inflationary
pressures then ease as the import price impact fades, some of the temporary currency weakness
dissipates, and weaker activity puts downward pressure on core inflation.
In the Eurozone and Japan, currency appreciation and weaker global demand weigh on net trade.
Growth in the Eurozone slows to 1.2% in 2017 and 0.9% in 2018, before slowly picking up. Japan
achieves growth of 0.9% and 0.6% in these two years.
Global growth slows to 2.2% (from 2.6% in the baseline) in 2017, 1.9% (2.9%) in 2018 and 2.0% (2.8%)
in 2019.
Figure 5.A: Cross-country GDP impact of ‘Trump presidency weighs on global growth’ scenario
Global scenarios service Q1 2017
40
Commodity and asset price results
The commodity and asset price results of this scenario may be summarised as follows:
Oil and commodity prices are weighed down over the scenario by weaker global demand. At their peak,
oil prices are some 18% lower than our baseline.
The yen and the euro strengthen significantly in the short term compared to baseline. In 2018, the
yen and euro are 3-4% stronger against the dollar. While generally weakening against advanced
economies, the dollar appreciates against emerging market currencies; as a result, the dollar is a little
stronger than in the baseline on a (broad-based) trade-weighted basis.
The Fed initially raises the Fed funds rate in line with the baseline forecast. But it then adopts a
cautious stance as the US economy slows, pausing its tightening cycle during 2017 and then
bringing the policy rate back towards the effective lower bound. This reflects the anticipated drag
from weaker growth on core inflationary pressures over the medium term, notwithstanding the inflationary
effects of tariffs and supply-side headwinds.
Advanced-economy government bond yields are similarly subdued. US yields nudge down as policy
rates remain low for longer and safe-haven flows increase amid the heightened uncertainty, more than
offsetting the impact of increased concerns over the US itself.
Global equity prices dip on the back of weaker US equities and a degree of contagion to other
economies.
Global scenarios service Q1 2017
41
Figure 5.B: Cross-country GDP impact of ‘Trump presidency weighs on global growth’ scenario
-3 -2.5 -2 -1.5 -1 -0.5 0
MexicoChina
HungaryUS
MalaysiaLuxembourg
Hong KongMalta
KuwaitSweden
DenmarkSouth Korea
NorwayOman
Saudi ArabiaPoland
VenezuelaLatvia
BahrainCroatia
BelgiumIran
NetherlandsItaly
Czech RepublicLithuania
JapanIreland
IndiaIraq
AngolaAustriaNigeria
GermanyChile
PakistanEgypt
TurkeySpain
EstoniaPhilippines
AlgeriaEurozoneAustralia
New ZealandSloveniaMauritius
CanadaFinlandRussiaCyprus
QatarTaiwan
South AfricaVietnamNamibia
BrazilIsraelPeru
SwitzerlandGreece
EcuadorIndonesia
UAERomania
FranceThailand
Slovak RepublicUK
UruguaySingaporeArgentinaColombiaPortugalBulgariaZambiaKenya
MoroccoUgandaTunisiaGhana
Advanced
Emerging
World: GDP - Trump presidency weighs on global growth
Source : Oxford Economics
% difference in level of GDP versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.1.
Global scenarios service Q1 2017
42
Figure 5.C: Cross-country country exchange rate impact ‘Trump presidency weighs on global
growth’ scenario
-20 -15 -10 -5 0 5 10
Mexico
Australia
Chile
Argentina
South Africa
Russia
Brazil
India
Philippines
Canada
China
Thailand
Indonesia
South Korea
Malaysia
Taiwan
Singapore
Hong Kong
US
UAE
Saudi Arabia
Turkey
UK
Japan
Romania
Norway
Sweden
Hungary
Poland
Czech Republic
Croatia
Denmark
Switzerland
Bulgaria
Eurozone
Advanced
Emerging
World: US dollar exchange rates - Trump presidency weighs on global growth
Source : Oxford Economics
Depreciation
% difference in level of US dollar exchange rates versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.2.
Global scenarios service Q1 2017
43
-3
-2
-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
World: GDP% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
-5
-4
-3
-2
-1
0
1
2
3
4
2007 2009 2011 2013 2015 2017 2019 2021
US: GDP% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
-2
-1
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: CPI inflation% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
-20
-15
-10
-5
0
5
10
15
2007 2009 2011 2013 2015 2017 2019 2021
US: Exports% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2007 2009 2011 2013 2015 2017 2019 2021
US: Labour supply% year
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
Trump presidency weighs on global growth
-12
-10
-8
-6
-4
-2
0
2007 2009 2011 2013 2015 2017 2019 2021
US: Budget balance% of GDP
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
Chart 5.1: World GDP Chart 5.2: US GDP
Chart 5.3: US exports Chart 5.4: US inflation
Chart 5.5: US unified budget balance Chart 5.6: US labour supply
Global scenarios service Q1 2017
44
-8
-6
-4
-2
0
2
4
6
8
2007 2009 2011 2013 2015 2017 2019 2021
Mexico: GDP% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
0
1
2
3
4
5
6
7
2007 2009 2011 2013 2015 2017 2019 2021
Mexico: CPI inflation% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
0
2
4
6
8
10
12
14
16
2007 2009 2011 2013 2015 2017 2019 2021
China: GDP% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
10
12
14
16
18
20
22
24
26
2007 2009 2011 2013 2015 2017 2019 2021
Mexico: Exchange ratePeso/$
Baseline
Forecast
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Depreciation
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: Policy rate%
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
-4
-2
0
2
4
6
8
10
2007 2009 2011 2013 2015 2017 2019 2021
China: CPI inflation% year
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
Chart 5.9: Mexican exchange rate Chart 5.10: Chinese GDP
Chart 5.11: Chinese inflation Chart 5.12: US policy rate
Chart 5.7: Mexican GDP Chart 5.8: Mexican inflation
Global scenarios service Q1 2017
45
0
500
1000
1500
2000
2500
3000
2007 2009 2011 2013 2015 2017 2019 2021
US: Equity prices
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
S&P 500 composite index
Trump presidency weighs on global growth
0
50
100
150
200
250
2007 2009 2011 2013 2015 2017 2019 2021
World: Non-oil commodity prices2005 = 100
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
-8
-6
-4
-2
0
2
4
6
8
10
12
2007 2009 2011 2013 2015 2017 2019 2021
Current account balances% of GDP
Germany
Forecast
Source : Oxford Economics/Haver Analytics
Japan
US
China (4-quarter moving average)
Baseline
Trump presidency weighs on global growth
0
1
2
3
4
5
6
7
8
2007 2009 2011 2013 2015 2017 2019 2021
World: CPI% year
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
Trump presidency weighs on global growth
20
40
60
80
100
120
140
2007 2009 2011 2013 2015 2017 2019 2021
World oil price$/barrel
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
Trump presidency weighs on global growth
Chart 5.15: Current account balances Chart 5.16: Non-oil commodity prices
Chart 5.17: World oil prices Chart 5.18: World inflation
Chart 5.13: US bond yields Chart 5.14: US equity prices
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: 10-year government bond yields%
Baseline
Trump presidency weighs on global growth
Source : Oxford Economics/Haver Analytics
Forecast
Global scenarios service Q1 2017
46
6 US growth surges amid Trump fiscal stimulus
While our first Trump scenario examines an adverse outcome for the US economy, a possibility
highlighted by the latest Oxford Economics Global Risk Survey is that the result of congressional
negotiations is far more stimulatory. In particular, a greater relaxation of fiscal orthodoxy might be
achieved in exchange for a less protectionist stance than the new president campaigned on, as we
explore in our upside Trump scenario.
In this scenario, the result of congressional negotiations is significantly more expansionary than assumed in
the baseline. The fiscal package is larger, with $2 trillion worth of personal income and corporate tax cuts
and a $250 billion public infrastructure investment plan. In exchange, Trump refrains from imposing trade
restrictions.
As a result, the US economy grows more quickly than in the baseline. It benefits not only from the initial
impact of lower taxes and increased infrastructure spending, but also increased confidence in Trump and his
team’s ability to govern. In 2017, growth edges up to 2.5% (2.3% in the baseline); in 2018, when the boost
from fiscal stimulus and private sector confidence peaks, growth reaches 3.6% (compared with 2.5%).
The global economy grows more quickly as stronger US growth spills over, fears over increased
protectionism dissipate and confidence improves. World growth reaches 2.7% in 2017 and 3.3% in 2018,
0.1-0.4pp above baseline. But the impact varies widely across countries, reflecting policy and market
developments. Economies around the world benefit from renewed confidence, stronger global trade and
more buoyant equity markets. But, as the Fed brings forward its tightening cycle (with the ECB and Bank of
England following suit), a stronger dollar and higher US interest rates reduce the attractiveness of emerging
market assets. As capital flows from emerging markets to the US amid investor concerns over the impact on
emerging market balance sheets and reduced incentives to 'hunt for yield', credit conditions tighten in more
vulnerable emerging market economies and the boost to activity is at least partially tempered.
We assign a Global Scenarios Service (GSS) weight of 25% weight to this scenario.
Assumptions
The main assumptions of this scenario are as follows:
The US embarks on fiscal loosening. A $2 trillion package of tax cuts is agreed with Congress
(compared with $1 trillion in the baseline), with 60% aimed at lowering personal income taxes and 40%
accounted for by lower corporate taxes.
Tax cuts are implemented in late-2017 and have the greatest impact in FY2018.
Along with the tax cuts, we assume Congress passes a $250 billion public infrastructure investment
plan (compared with $200 billion in the baseline).
The offset from cuts to government outlays are a little larger than in our baseline ($350 billion compared
with $300 billion), but the government spending cuts are even more back-loaded in the decade. The
offsetting revenues come as a one-time tax holiday on foreign earnings and carried interest income, as in
the baseline, but we also assume a repeal of some corporate tax expenditures.
Trump pursues a less protectionist stance than he campaigned on and refrains from imposing trade
restrictions.
Post-election uncertainty dissipates quickly. Confidence in Trump and his team’s ability to govern
increases, peaking in 2018 for US businesses, and confidence improves globally.
Global scenarios service Q1 2017
47
The Fed adopts a more rapid pace of policy tightening as the outlook for the US economy improves
and inflationary pressures start to build. Rates are hiked three to four times in each of 2018 and 2019, a
faster pace than assumed in the baseline.
The attractiveness of emerging market assets declines as the US dollar strengthens across the
board and US interest rates rise. Capital flows from emerging markets to the US, amid investor
concerns over the impact on EM balance sheets and reduced incentives to 'hunt for yield'.
Among advanced economies, currency depreciation for Japan and Europe results in a further boost
to export demand, adding to the support from stronger global trade.
Table 6.1: Transmission of ‘US growth surges amid Trump fiscal stimulus’ scenario
Table 6.1: Transmission of the ‘US growth surges amid Trump fiscal stimulus’ scenario
Assumption Transmission Channel Impact
Tax reductions are twice as large as in the
baseline
Increase in personal income leads to greater
private consumption
The government implements a larger
infrastructure investment programHigher domestic demand
Fiscal loosening is debt financed
Initial worsening of government balance,
increasingly mitigated by higher tax revenues
as growth picks up
Worsening of fiscal position is only limited
Less scope for trade retaliation, protecting US
exporters
US maintains mutually beneficial strong trade
ties with the rest of the World
Increased deportations of illegal
immigrants would be limited
Population and working population above
baselineSupportive for long-term growth
As the economy improves,
confidence in President Trump and
his team’s ability to govern
increases
Uncertainty dissipates quickly, limiting impact
on consumer and business investment
demand, and confidence improves
Global positive confidence shock provides
second-round effects enhancing demand, as
well as supply growth as capital accumulation
accelerates
Monetary policy less
accommodative than in the baseline
In this environment, the Fed would most likely
judge the labor market progress and building
inflationary pressures as sufficient
justification for three rate hikes in 2017.
Thereafter, the Fed would adopt a more
hawkish stance with three to four rate hikes in
each of 2018 and 2019
Inflation remains under control, credit
conditions tighten slightly, long-term bond
yields rise across the board.
A strengthening dollar and higher
dollar interest rates reduces the
attractiveness of emerging market
assets
Capital flows from emerging markets to the
US, amid investor concerns over the impact on
EM balance sheets and reduced incentives to
'hunt for yield'
The impact of stronger global demand on EMs
is at least partially tempered by tightening
credit conditions, particularly in more
vulnerable EMs
US embarks on fiscal loosening with
a particular focus on tax reductions
and public investment
In exchange for relaxation on fiscal
orthodoxy, Trump adopts less
protectionist trade stance than he
campaigned on
Stronger US export growth and healthier world
trade growth; Less retaliation benefits
consumers
Global scenarios service Q1 2017
48
Real economy results
The real economy results of this scenario may be summarised as follows:
The countries that experience the largest boost to GDP are:
The US itself, which benefits initially from not only the initial impact from lower taxes and increased
infrastructure spending, but also increased confidence in President Trump and his team’s ability to
govern. Overall, the level of US GDP rises 2.2% above baseline by the end of the five-year forecast;
the level of employment is some 1.8 million higher.
Canada, the US’s closest trading partner. By the end of the five-year forecast, the level of GDP is
around 1% higher than in the baseline forecast.
China, which benefits from increased confidence as fears over US protectionism dissipate, as well
as increased demand from the US market and increased global demand more generally. By the end
of the five-year forecast, its level of GDP is 1.9% higher than in the baseline.
Other Far Eastern countries that benefit from increased confidence and the recovery in global
trade growth. Countries such as Hong Kong and Taiwan grow a little more rapidly than in the
baseline for much of the forecast; by 2021, the level of GDP lies 1.1-1.2 percentage points above
baseline.
Mexico, which benefits from increased demand from its largest export market and increased
confidence as fears over US protectionism dissipate.
The economies that benefit least are emerging market economies vulnerable to a stronger US
dollar and higher US interest rates. South Africa and Turkey, for example, fail to reap the benefits of a
stronger global economy.
In the US, growth rises above baseline. In 2017, growth picks up to 2.5% (compared with 2.3% in the
baseline); in 2018, when the boost from fiscal stimulus and private sector confidence peaks, growth
reaches 3.6% (compared with 2.5%).
Among the advanced economies, Japan and Europe fare moderately well, as currency depreciation
combines with stronger global trade to growth to support export growth. Growth in the Eurozone
remains around 1.7% in 2017 and 1.8% 2018, 0.2-0.3 percentage points above baseline; Japanese
growth receives a similar boost, edging up to 1.4% in 2017 and 1.7% in 2018.
Among emerging market economies, commodity exporters are also positively affected, boosted to
some extent by increased commodity demand that pushes up oil and other commodity prices.
World growth reaches 3.4% in 2018, 0.5 percentage points above baseline.
Global scenarios service Q1 2017
49
Figure 6.A: Cross-country GDP impact of ‘US growth surges amid Trump fiscal stimulus’ scenario
Commodity and asset market results
The commodity and asset market results of this scenario may be summarised as follows:
Oil and other commodity prices gradually edge higher. By 2021, oil prices and metals prices are 5-6%
higher than our baseline.
The US dollar strengthens across the board, remaining 1-2% above baseline on an effective trade-
weighted basis over the course of the scenario period. The currencies of vulnerable emerging market
economies depreciate the most.
The faster pace of Fed rate hikes (see above) is accompanied by an earlier start to the policy
tightening cycle in some other major advanced economies. In the Eurozone, for example, the ECB
raises its deposit rate in 2019.
Advanced-economy government bond yields pick up, particularly in the US. US 10-year yields rise
0.4-0.6 percentage points above the baseline profile in 2018 and 2019, as both US growth and Fed policy
tightening gathers pace. Eurozone and UK yields also edge above the baseline path, albeit much less
markedly.
Global equity prices are buoyant on the back of the improved global economic backdrop. Gains
are most marked in the US, where the S&P rises 7% above baseline in 2018; Canada and China notch
up 5-6% gains relative to baseline.
Global scenarios service Q1 2017
50
Figure 6.B: Cross-country GDP impact of ‘US growth surges amid Trump fiscal stimulus’ scenario
0 0.2 0.4 0.6 0.8 1 1.2 1.4
South AfricaTurkeyKenyaMalta
UgandaUAE
BelgiumAlgeria
EcuadorSlovak Republic
UruguayGreece
IranIndia
EgyptHungary
QatarBulgaria
LuxembourgPakistan
IraqGhana
MoroccoCyprus
MauritiusNamibiaPortugal
KuwaitIsrael
NigeriaColombia
RussiaAustriaZambiaTunisia
SloveniaSaudi Arabia
AngolaSpain
NetherlandsSwitzerland
New ZealandCzech Republic
FinlandRomaniaLithuania
LatviaAustralia
PeruEstonia
EurozoneDenmark
FranceNorway
GermanyCroatiaMexico
ItalySweden
SingaporeMalaysia
PolandUK
OmanJapan
ThailandArgentina
PhilippinesIreland
VietnamVenezuela
BrazilBahrain
IndonesiaChina
South KoreaTaiwan
ChileHong Kong
CanadaUS
Advanced
Emerging
World: GDP - US growth surges amid fiscal stimulus
Source : Oxford Economics
% difference in level of GDP versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.1.
Global scenarios service Q1 2017
51
Figure 6.C: Cross-country exchange rate impact of ‘US growth surges amid Trump fiscal stimulus’
scenario
-5 -4 -3 -2 -1 0 1 2
Turkey
Russia
Malaysia
Brazil
Taiwan
China
South Africa
India
South Korea
Indonesia
Australia
Canada
Japan
Eurozone
Bulgaria
Croatia
Singapore
UK
Thailand
Poland
Chile
Denmark
Hungary
Sweden
Switzerland
Romania
Czech Republic
Argentina
Hong Kong
US
Mexico
UAE
Saudi Arabia
Philippines
Norway
Advanced
Emerging
World: US dollar exchange rates - US growth surges amid fiscal stimulus
Source : Oxford Economics
Depreciation
% difference in level of US dollar exchange rates versus baseline, 2018
Note: Data in the chart rounded to the nearest 0.2.
Global scenarios service Q1 2017
52
-3
-2
-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
World: GDP% year
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
-5
-4
-3
-2
-1
0
1
2
3
4
5
2007 2009 2011 2013 2015 2017 2019 2021
US: GDP% year
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
-20
-15
-10
-5
0
5
10
15
2007 2009 2011 2013 2015 2017 2019 2021
US: Exports% year
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
-2
-1
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: CPI inflation% year
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
-12
-10
-8
-6
-4
-2
0
2007 2009 2011 2013 2015 2017 2019 2021
US: Budget balance%
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
US growth surges amid fiscal stimulus
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2007 2009 2011 2013 2015 2017 2019 2021
Baseline
US growth surges amid fiscal stimulus
Forecast
% year
US: Labour supply
Source : Oxford Economics/Haver Analytics
Chart 6.1: World GDP Chart 6.2: US GDP
Chart 6.3: US exports Chart 6.4: US inflation
Chart 6.5: US unified budget balance Chart 6.6: US labour supply
Global scenarios service Q1 2017
53
0
1
2
3
4
5
6
7
2007 2009 2011 2013 2015 2017 2019 2021
Mexico: Inflation% year
Baseline
Forecast
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
0
2
4
6
8
10
12
14
16
2007 2009 2011 2013 2015 2017 2019 2021
China: GDP% year
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
-4
-2
0
2
4
6
8
10
2007 2009 2011 2013 2015 2017 2019 2021
China: CPI inflation% year
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
5
5.5
6
6.5
7
7.5
8
2007 2009 2011 2013 2015 2017 2019 2021
China: Exchange rateYuan/$
Baseline
Forecast
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Depreciation
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: Policy rate%
Baseline
Forecast
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Chart 6.7: Mexican GDP Chart 6.8: Mexican inflation
Chart 6.9: Chinese GDP Chart 6.10: Chinese inflation
Chart 6.11: Chinese exchange rate Chart 6.12: US policy rate
-8
-6
-4
-2
0
2
4
6
8
2007 2009 2011 2013 2015 2017 2019 2021
Mexico: GDP% year
Baseline
Forecast
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Global scenarios service Q1 2017
54
0
500
1000
1500
2000
2500
3000
2007 2009 2011 2013 2015 2017 2019 2021
US: Equity prices
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
S&P 500 composite index
US growth surges amid fiscal stimulus
-8
-6
-4
-2
0
2
4
6
8
10
12
2007 2009 2011 2013 2015 2017 2019 2021
Current account balances% of GDP
Germany
Forecast
Source : Oxford Economics/Haver Analytics
Japan
US
China (4-quarter moving average)
US growth surges amid fiscal stimulus
Baseline
0
50
100
150
200
250
2007 2009 2011 2013 2015 2017 2019 2021
World: Non-oil commodity prices2005 = 100
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
20
40
60
80
100
120
140
2007 2009 2011 2013 2015 2017 2019 2021
World oil price$/barrel
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
US growth surges amid fiscal stimulus
0
1
2
3
4
5
6
7
8
2007 2009 2011 2013 2015 2017 2019 2021
World: CPI% year
Source : Oxford Economics/Haver Analytics
Baseline
Forecast
US growth surges amid fiscal stimulus
Chart 6.13: US bond yields Chart 6.14: US equity prices
Chart 6.15: Current account balances Chart 6.16: Non-oil commodity prices
Chart 6.17: World oil prices Chart 6.18: World inflation
0
1
2
3
4
5
6
2007 2009 2011 2013 2015 2017 2019 2021
US: 10-year government bond yields%
Baseline
US growth surges amid fiscal stimulus
Source : Oxford Economics/Haver Analytics
Forecast
Global scenarios service Q1 2017
55
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