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The second quarter has been dominated by the UK’s EU membership referendum and the shock “leave” result, and this has been reflected in our most read Economies articles. Our analysts have capitalised on our macro and industry forecast models to examine the likely impact on the UK, European and global economies as well as on the consumer goods industry. In light of declining business and consumer confidence in advanced economies, the outlook for the global economy has been revised downwards and downside risks dominate the year ahead.
As the UK heads towards its EU membership referendum, there remains much uncertainty over both the outcome and the implications of a vote to leave. In fact, uncertainty is the key challenge in regard to Brexit, and this uncertainty will contribute to falls in business and consumer confidence as well as delays to investment decisions. The protracted nature of any exit negotiations will not help. There are also wider implications for the EU, both in terms of its economy and its very future.
So far so good – no return to global recession has happened yet, but the newest indicators for the global economy signal a weakening, and the business mood is worsening. In this context, we have revised the world GDP growth forecast down to 3.0% for 2016 and 3.2% for 2017. In our view, the risks are downside this year. The world’s stock markets have rebounded from the sharp drops experienced in early 2016, but financial stability has decreased, risk-aversion is rising, global lending conditions are tightening and monetary policy power is questionable. As a result, consumer and business confidence indicators are declining across the developed markets, and this will have an impact on consumption and investment decisions.
The UK population has voted to leave the European Union (EU), and attention will increasingly focus on the direct impact on business, and the practicalities surrounding exit negotiations. Unfortunately, one key word will continue to overshadow the UK economy: uncertainty. This uncertainty will not be a short-term challenge; exit negotiations are likely to last at least two years. “Unknown unknowns” are a major challenge. Added to which, with voters split almost 50-50 in the run up to the referendum, and passions running high, huge divisions have come to the fore, not least within the ruling Conservative party.
Source: Euromonitor International Macro Model
Euromonitor International has published a new strategy briefing that focuses on the fourth industrial revolution, referred to as Industry 4.0. Industry 4.0 is accelerating, bringing significant changes to manufacturing industries. New production methods will make supply chains more interconnected, efficient and flexible, allowing mass-customisation and virtual production. By implementing Industry4.0 concepts, developed countries aim to offset high production costs and solve the issue of ageing populations, as developing countries could gain by leapfrogging in the manufacturing value chain.
China’s economy is still on track to grow by 6.5% in 2016 and 6.2% in 2017, based on the official GDP measure. This is at the low end of the government’s target of 6.5-7% growth in 2016 and annual growth of 6.5% in 2016-2020. The government has relaxed its budget deficit target for 2016to 3% (from 2.3% in 2015), providing room for some fiscal stimulus. It has also promised to move forward with the restructuring of state-owned enterprises (SOE’s) and increasing private sector competition in key industries, but doubts about the execution of these reforms remain.