Global economy losing momentum
Economic data have begun to slow. True, the numbers are slowing from strong levels and the global economy has been experiencing a period of robust growth but the upswing does appear to be meeting some resistance. Monetary policy tightening, higher interest rates, lower real wage growth and uncertainty stemming from a potential trade war and the geopolitical situation are the primary reasons behind the slowdown. In addition, the strong euro (EUR) is acting as a headwind for the eurozone economies. Nevertheless, we are still looking for reasonable levels of global growth this year - just not quite at the same impressive rates as we have experienced recently. In our opinion, US growth will also enjoy support from loose fiscal policy in the coming years.
ECB's initial rate hike postponed
Inflation in the eurozone is still lagging, plus the economic data, as noted above, indicate the economy will grow at a slightly slower pace in coming months. Due to this, we do not now expect an interest rate hike from the ECB until December 2019 (compared with April 2019 previously). We estimate that at that point the ECB will raise interest rates by 0.2 percentage points. However, we still expect bond buybacks to cease towards the end of this year.
Oil price rising
The oil price has risen noticeably of late and is now hovering some way above USD70/bl. Supply and demand are generally better balanced and global oil inventories have declined. The oil market could well tighten slightly in coming years, as demand should be supported by reasonable global economic growth and an expanding global population, while new investments in oil production are lagging somewhat. There are also a few pressure points, for example in Venezuela, where oil production is gradually falling, as the country cannot afford the investments needed to maintain production. Therefore, we have raised our oil price forecast to an average of USD70/bl this year and an average of USD73/bl for next year. There is near-term risk that the oil price could rise somewhat higher than our forecast if the US reintroduces sanctions against Iran that hit the country's oil exports. However, the high oil price could also prompt OPEC to announce a ramping up of production in 2019, which might cause the oil price to fall below our forecast.
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