1、Contents HYPERLINK l _bookmark0 Global economic outlook: In the eye of thetariffstorm3 HYPERLINK l _bookmark1 United States: Trade policy uncertainty andslower growth9 HYPERLINK l _bookmark2 China: Stimulus could escalate later this year13 HYPERLINK l _bookmark3 Eurozone: ECB lift-off unlikely befor

2、e thenext downturn17 HYPERLINK l _bookmark4 Japan: Sustained monetary accomodation amidweak inflation20 HYPERLINK l _bookmark5 Australia: Cork inthe ocean23 HYPERLINK l _bookmark6 New Zealand: Cork in theocean (too)27 HYPERLINK l _bookmark7 Canada: Stabilization, but structuralimbalancesremain29 HYP

3、ERLINK l _bookmark8 EMs ex-China & India: A disproportionate growth drag31 HYPERLINK l _bookmark9 Rates outlook: Timefor “Insurance”33 HYPERLINK l _bookmark10 FX outlook: Hinging on the CNY, but USD policy willmatter too37 HYPERLINK l _bookmark11 Commodities outlook:Demand, impaired39 HYPERLINK l _b

4、ookmark12 Equities outlook: The Fed put vs.sluggishgrowth43 HYPERLINK l _bookmark13 Economic and market forecasts45Ric Deverell+61 2 8232 4307 HYPERLINK mailto:ric.deverell ric.deverellHayden Skilling, CFA+61 2 8232 2623 HYPERLINK mailto:hayden.skilling hayden.skillingGlobal economic outlook: In the

5、 eye of the tariff storm2018/2019 taxonomy of a slowdown“You have to know the past to understand the present”.Carl SaganThe global slowdown that commenced in late 2017 has continued in recent months, with the pace of GDP growth dipping to something like 2% saar in Q2, down from 2% in Q1. While fears

6、 of recession have increased, growth remains significantly stronger than the low point in the mini-cycles of 2016 and 2012 (1% and 1% respectively) and well above the 1% y/y seen at the trough of most “global recessions” see HYPERLINK https:/r.macq.co/MTcyODk2Nw A short history of “global recessions

7、” - The US HYPERLINK https:/r.macq.co/MTcyODk2Nw in the driving seatThe initial phase of the slowdown was part of the regular cycle growth was never likely to stay at the well above average 3% pace seen in 2017Q3 however, the weakness over the past year looks to have been exacerbated by the trade wa

8、r between the US and China, with the fading US fiscal stimulus also a factor this year.Fig 1 Global growth has dipped meaningfully belowaverageGlobal IP Growth*Dashed line indicates post-1980 average, whilegrey shaded areas indicate US recessions. cent15*Dashed line indicates post-1980 average, whil

9、egrey shaded areas indicate US recessions.129630-3-6-98085909500051015Fig 2 with the slowdown in trade weighing on both industrial production and GDPGlobal Trade & Output*January 2012 = 100Industrial productionReal trade*Dashed lines indicate implementation of major US-China tariffsIndustrial produc

10、tionReal trade*Dashed lines indicate implementation of major US-China tariffs951213141516171819Source: NBER, Macrobond, MacquarieMacroStrategySource: IMF, Macrobond, Macquarie MacroStrategyAs shown in the accompanying figures, global trade, industrial production and GDP have on average grown at the

11、same pace in recent years, with the cycles heavily interrelated industrial production and trade tend to have a higher cyclical amplitude, while GDP is a littlesmoother.Following the imposition of US tariffs on $250 billion of US imports between July and September last year, global trade volumes decl

12、ined heavily, falling by 2.9% between October and December.This weighed on global IP, with the level of production essentially flat from October to Aprilaround the weakest it has been in recent decades (outside recession).With a lag, the trade and IP weakness has also begun to weigh on GDP, with gro

13、wth slowing from an above-average 3% saar in H1 last year to a below-average 2% saar in Q2 thisyear. The biggest impact on domestic demand has been through business investment, with growth slowing in most of the major economies in the past year. While consumption growth has also slowed, as is normal

14、ly the case it has been less impacted. As we HYPERLINK https:/r.macq.co/MTcyODk2Nw previously demonstrated, this is not terribly surprising as consumption (and services in particular) rarely moves as much as trade, production and investment, even during recession.Fig 3 Trade, GDP and industrial prod

15、uction growth tend to cycle together, with GDP more stable than the othersGlobal Trade & OutputFig 4 Global trade is a key factor in global investment, with the trade weakness beginning to weigh as uncertainty buildsBusiness Investment & Global TradeGDP(quarterly,GDP(quarterly,Real trade (LHS)108642

16、0-2-4-6-8 annualisedgrowth cent20advanced real business advanced real business Global realtrade*Includes Canada, Germany, Japan, UK, and US1050-5Quarterly, year-ended growth1415161718199800020406081012141618Source: IMF, Macrobond, MacquarieMacroStrategySource: Macrobond, Macquarie Macro StrategyThe

17、outlook: Living on the edgeThe key question for markets is whether the slowdown will continue, or whether a base is being formed? To that end, the recent hard data have been encouraging, with global industrial production momentum (3m/3m saar) improving from zero in February to around 2% in May.In no

18、rmal circumstances, this rebound would suggest that broader measures of global growth will soon bottom out, and that a recovery will start in the second half of the year. In the current cycle, however, the trade threat remains front and centre, with the full impact of the May/June tariff increases y

19、et to be seen.To that end, the PMI surveys have not reflected the improvement in the hard production data, with the global manufacturing PMI falling further in June the new orders component has dipped again, after earlier signs of stabilisation while the composite PMI was flat. This, along with the

20、fact that global trade has yet to recover back in line with the level of global IP suggests that growth could slow further in Q3 (see HYPERLINK https:/r.macq.co/MTcyNzY5NQ Global Trade Is the recovery over before it began?).With a further 10% tariff on the remainder of the USs imports from China exp

21、ected in September, we suspect growth will continue to slow inQ4.In many economies, GDP in Q1 was flattered by an inventory and net export boost that will unwind in Q2, suggesting that the Q2 GDP outturn could be materially weaker thanQ1.Fig 5 Global IP momentum has been recovering since February, a

22、lthough the global PMI has fallen again recentlyFig 6 with the recovery broad-based outside the US, which continues to lag centGlobal Industrial Production GrowthmanufacturingPMI (RHS)AveragemanufacturingPMI (RHS)Averageproductiongrowth, annualised production grow th, 543210-1-2Index12Globalex-US &

23、Globalex-US & 86420-2-4-6IP Growth3m/3m annualised12131415161718191213141516171819Source: IHS Markit, Macrobond, MacquarieMacroStrategySource: Macrobond, Macquarie Macro StrategyPolicy to the rescue?While the temptation is to focus on the negative, as we noted in HYPERLINK https:/r.macq.co/MTU5NDI2M

24、A The Slowdown Scare of 2019 HYPERLINK https:/r.macq.co/MTU5NDI2MA Mid-cycle correction or impending recession?, the global economy has had several “mini cycles” in the past decade, with central banks turning dovish each time growth has slowed. And while there is less monetary policy ammunition than

25、 seen in the past, the US and China remain the main drivers of the global economy (growth in Japan and Europe is essentially derivative), with both retaining significant capacity to stimulate.In the US, the Fed is likely to cut the fed funds rate by 75 basis points over the next 6-9 months, with lon

26、g-term rates having already fallen dramatically the 10-year is down 120 basis points to 2% and the key 30-year mortgage rate has fallen by a similar amount sinceNovember. Working against this, however, is the fact that the fiscal stimulus continues to abate, with recent CBO estimates suggesting that

27、 fiscal spending could turn contractionary later this year.In China, while the initial stimulus late last year has faded, as growth continues to slow we expect policy to once again turn accommodative in Q4 see HYPERLINK https:/r.macq.co/MTcyOTU0NA G20 and China June PMI In line HYPERLINK https:/r.ma

28、cq.co/MTcyOTU0NA with consensus, still too early for bigstimulus.Fig 7 US 30-year mortgage rates have fallen materially, providing a big boost to the economy cent30-Year MortgageRateFig 8 Working against that, the fiscal stimulus turns to a drag this yearUS Federal Government Spending5.55.04.54.03.5

29、3.010ForecastsActual8ForecastsActual6420-2-4-6-8Nominal, quarterly annualised grow th 10111213141516171819 Source: Macrobond, MacquarieMacroStrategySource: BEA, CBO, Macquarie Macro StrategyThis all suggests to us that while global growth will remain subdued for a time, absent another major tariff i

30、ncrease, it should begin to recover early next year.Indeed, if there is no trade war escalation later this year, the recovery could occurmore quickly than suggested by our centralscenario.That said, we suspect that the upswing next year could be more modest than those seen in previous mini cycles, a

31、 phenomenon likely to be exacerbated by the fact that unemployment is now very low in the major economies, suggesting that there is little spare capacity.China is likely to continue to structurally slow, while the US looks unlikely to benefit from another fiscalstimulus.Looking further ahead, if the

32、 recent pattern is repeated, the US and global economies could enter yet another “slowdown” scare in 18 months to 2 years time, with the risk of recession in the coming year or two after that relatively high given diminished policy space and very tight labour markets.With the trade war still working

33、 its way through the system, we doubt the Fed will be game to hikeduringthecomingslowupswing,whichwillmeanweenterthe2021downturnwitheven less policy space than atpresent.In this world, most of the other major central banks keep rates at end 2019 levels through2020.Fig 9 We expect GDP growth to begin

34、 to recover later this year, but for the recovery to remain relatively subduedFig 10 Recent up cycles have lasted around 2 years, suggesting the next “slowdown scare” could arrive in 2021Market exchange rate w eightedGlobal Growth &PMIPer cent556Year-endedAv erageYear-ended4(1980-Present)4(noescalat

35、ion)554.021 months24 monthsQuarterly annualisedgrow21 months24 monthsQuarterly annualisedgrowth*Dashed line indicates forecasts3 54210-1(central)-2-3-4Global recessionYear-ended(central)533.02.52.01.51.090 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20121314151617181920Source: IMF, Macrobond, Macquari

36、eMacroStrategySource: IHS Markit, IMF, Macrobond, Macquarie MacroStrategyRisksUnsurprisingly, the key risk remains yet another increase in trade tensions. While peace was declared at the G-20 meeting in late June, Mr Trump has in the past shown that such agreements can prove fleeting, with the risk

37、of further tariffs still very real.A Q1 “truce” ahead of the election is our base case, but we suspect that the tensions between China and the US will be ongoing, and see little prospect of a near term “solution” that involves all of the recent tariffs beingremoved.If the tensions continue to escala

38、te, we suspect the impact could be significant. In a speech on 2 July, Bank of England Governor, Mark Carney, noted that “while traditional models suggest that the direct effects of the tariff measures implemented so far are likely to be small, these estimates may underestimate the non-linear effect

39、s of tariffs on tightly integrated global supply chains.” To that end, Mr Carney noted that the indirect effects of trade tensions on business confidence and investment can be much more material than the direct effects alone, as seen in the UK, where business investment has flatlined since the refer

40、endum.Tousthebiggestriskisthatongoinguncertaintyseestheslowdowninbusinessinvestment intensify recessions are generally driven by a big fall in investment with businesses also starting to cut back on hiring as the uncertaintylingers.Fig 11 Brexit uncertainty has seen UK investmentflatlineFig 12 Busin

41、ess investment normally drivesrecessionPer centRef erendumex Ref erendumex ex (range)*Includes Canada, Germany, Japan and the US151050-5Business InvestmentYear-ended growth25BusinessinvestmentGDP*2019Q2 estimates based on Atlanta Fed GDPNow modelBusinessinvestmentGDP*2019Q2 estimates based on Atlant

42、a Fed GDPNow model151050-5US Growth*Year-ended0002040608101214161848 53 58 63 68 73 78 83 88 93 98 03 08 13 18Source: Macrobond, MacquarieMacroStrategySource: Macrobond, Macquarie Macro StrategyWhile the risks look to be predominantly to the downside, it is also possible that there is a deal that re

43、moves the recent tariffs. If that were to occur, the industrial production recovery currently underway would continue and strengthen significantly.In that world, the dramatic easing in monetary conditions, could see a repeat of the period following the “insurance” cuts in 1998, with equity valuation

44、s increasing materially. Notably, we suspect the Fed would be slower taking back the cuts then seen in 1999, which could allow the rally to run further than many currently think possible.Fig 13 The Fed implemented three “insurance” cuts in1998Fig 14 Following those moves, the economy continued to gr

45、ow, and equity markets increased materiallyInterestRates2y-10y spread (LHS)Beginning of Asian Financial CrisisLTCMbailoutfunds2y-10y spread (LHS)Beginning of Asian Financial CrisisLTCMbailoutfundsupper bound Russian Financial Crisis0centGlobal IP and US Equity PricesBeginning of Asian Financial Cris

46、isYear-ended growthBeginning of Asian Financial CrisisYear-ended growth-19%500(RHS)Russian Financial CrisisLTCMbailout76543211600140012001000-609596979899004.50959697989900200Source: Macrobond, MacquarieMacroStrategySource: Macrobond, Macquarie Macro StrategyFig 15 Economic forecasts (forecasts shad

47、ed)QuarterlyAnnual*US1.9China6.1US1.9China6.1Eurozone0.51.01.61.01.01.21.0Japan(2.6)1.82.2(0.7)2.0(3.0)(0.9)India5.86.07.27.2UK(0.4)Canada1.1Australia2.8New Zealand1.82.02.82.8Global (MER)2.6Global (PPP)3.2US3.03.01.92.0China6.1Eurozone1.01.11.01.0Japan(0.3)0.00.10.7India7.06.06.97.0UK1.5Canada2.01.

48、01.41.2Australia2.5New Zealand2.0Global (MER)3.0Global (PPP)3.2GDP, YoYSep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-202018201920202021LR5.00.81.06.03.03.03.7CPI, QoQ saarSep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-202018201920202021LRUS (PCE)1.61.5US (PCE

49、)2.4Japan2.0(0.1)3.21.0Canada2.0CPI,YoYSep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-202018 2019 2020 2021LRUS (PCE)2.42.02.3China2.42.02.0EurozoneJapan1.11.01.5IndiaUK2.02.02.0Canada2.01.32.4Australia2.02.02.3New ZealandCore CPI,QoQsaarSep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

50、Mar-20 Jun-20 Sep-20 Dec-202018 2019 2020 2021LRUS (PCE)2.4Japan0.21.04.11.0Canada2.52.01.32.0Australia2.0CoreCPI,YoYSep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-202018 2019 2020 2021LRUS (PCE)2.01.82.3China2.02.02.02.02.01.72.02.02.0Eurozone1.01.01.01.01.01.0JapanIndia6.04.54.

51、5UK1.42.02.0Canada2.12.02.0Australia1.92.02.3New ZealandSource: Macrobond, Macquarie Macro Strategy. *Year-average termsDavid Doyle, CFA+1 416 848 3663 HYPERLINK mailto:david.doyle david.doyleNeil Shankar+1 416 607 5055 HYPERLINK mailto:neil.shankar neil.shankarUnited States: Trade policy uncertaint

52、y and slower growthReal GDP growth has slowed from the 3.0% average annualized pace achieved in 2018. In 1H19, we estimate a pace of 2.5%, with a rebound in consumer spending driving firmer final domestic demand growth in 2Q than in 1Q. We anticipate this slowing to continue to a pace of 1.5% annual

53、ized in 2H19 as trade policy uncertainty persists, before rebounding in 2020 to 2%. Our forecast relies heavily on consumer spending as a growth driver.As we highlight in HYPERLINK /api/static/file/publications/7374085/9b3d3a28500638ba60862643fd31a209b82d15de57003aa6004e8aa0c9c962c9.pdf?f=DP Trade W

54、ar and the US Economy: The Fast and the Furious, while we see the direct effects of the trade war as manageable, we find the indirect effects to be more concerning. The key channel to watch is the impact uncertainty has on confidence. This could weigh on investment decisions, an area we highlighted

55、as worthy of heightened attention at this stage in the cycle in HYPERLINK /rp/d/r/p/MTYwOTE3NA US Business Investment Bending, but not broken.Inflation, as measured by the core PCE price index, has decelerated from 2.0% YoY at end-18 to 1.6% YoY as of May-19. Our work in HYPERLINK /api/static/file/p

56、ublications/7372771/b6214d4f2f4a04f13aba4af6914846ce22a8d4824918fee9690c687e48de7bb0.pdf?f=DP US Inflation: 2019s Comeback Kid? showed that much of this deceleration related to idiosyncratic factors such as: i) a sharp reversal in airfare prices likely related to a decline in fuel prices, and ii) a

57、decline in prices for financial services.We expect core PCE inflation to rebound as idiosyncratic factors fade in importance, firm wages pass through, input costs rise as a result of implemented tariffs, and base effects from the decline in oil prices fade in 4Q19. Our forecast is for 1.9% YoY at en

58、d-19 and 2.4% YoY at end-20.Associated bond market pricing driven by an increase in uncertainty resulting from the recent trade war escalation led us to change our outlook for Fed policy in HYPERLINK /api/static/file/publications/7374640/d4c76828ea78baa17914c3e89d3a7d5fbd618dce62f4c11d1202de4029c674

59、83.pdf?f=DP Fed Outlook: Rate cuts have become HYPERLINK /api/static/file/publications/7374640/d4c76828ea78baa17914c3e89d3a7d5fbd618dce62f4c11d1202de4029c67483.pdf?f=DP likely. We are now calling for 3 rate cuts over the coming 6 to 9 months.As such, our base case is for a continued low 10-year yiel

60、d, as outlined in HYPERLINK /api/static/file/publications/7375701/48218bb3fecf9e55125b7f3c8718aab81719837e14edd6414c64969032da5360.pdf?f=DP US ten year yield and HYPERLINK /api/static/file/publications/7375701/48218bb3fecf9e55125b7f3c8718aab81719837e14edd6414c64969032da5360.pdf?f=DP the trade war Ev