Executive Summary
A. GLOBAL ENVIRONMENT
- Moderate global growth continues amid challenges. The global economy is still muddling through in a slow and weak mode. While most stock markets and currencies have recouped the losses suffered from post-Brexit turmoil, high-frequency indicators suggest that global growth continues, but at a moderate and uneven pace going into the second half-year of 2016 and in 2017. In its World Economic Outlook (WEO) October report, the International Monetary Fund (IMF) maintained global output growth estimates at 3.1% in 2016 and at 3.4% in 2017, the same as in early July shortly after taking into account the short-and medium-term impact of Brexit on the world economy.
- Continued growth divergence. Growth in the United States picked up, albeit still weak in 2Q while the eurozone’s economic recovery has lost some steam. Japan’s growth nears stalling, prompting more fiscal and monetary stimulus. China’s stable growth in 1H16 seems to show some incipient signs of weakness, reinforcing the persistent worries of an “L-shaped” recovery.
- Ultra-monetary accommodation remains, albeit limited effects. The persistent slow global growth means that low interest rates and yields will remain depressed for a longer while. Negative interest rates could go deeper for some central banks to avoid growth stagnation and deflation risk. Regional central banks mostly stay on the sidelines with the monetary policy leaning towards easing.
- Risks to outlook. Multiple events and uncertainties are still casting a shadow on the global economy and financial markets. 1) The Fed’s forward guidance on the US interest rates direction; 2) lingering risks and unresolved issues post the United Kingdom’s referendum decision to leave the European Union (Brexit); 3) a disruptive China’s economic rebalancing process and the risks of Chinese renminbi devaluation; and 4) the US Presidential election on 8 November.
