The document summarizes the global economic forecast for October 2010. It notes that the economic recovery has started to soften, with weak private sector job growth and inflationary pressures remaining low. Housing prices have stabilized but excess supply could continue to put downward pressure on prices. The recovery in Europe faces risks from the ongoing fiscal crisis, while unemployment has risen moderately due to subsidies but employment recovery will be slow. Fiscal consolidation efforts limit the ability for further stimulus measures in many countries.

1. Global economic forecast
October 11th 2010

2. The recovery has started to soften, with
the weakness of private-sector jobs
creation giving particular cause for
concern
Inflationary pressures remain very
weak—both the core consumer price
index and the core personal consumption
expenditure index are hovering just
above zero in year-on-year terms
House prices have stabilised, but a large
stock of houses on the market now or
coming in the near future will exert
renewed downward pressures on prices

3. Europe’s economy is recovering but
the fiscal crisis has raised risks
The economy is burdened with spare
capacity and urgent need for fiscal
consolidation
Unemployment has risen only
moderately owing to wage subsidies,
but employment recovery will be slow
Greece is likely to need a re-
structuring of its government debt
despite a massive rescue package

4. Export performance in Japan will
deteriorate over the remainder of 2010
and into 2011, partly reflecting a
deceleration of Chinese growth
The urgent need for fiscal consolidation
greatly limits room for further fiscal
stimulus beyond measures already
approved
Weak domestic demand is putting
downward pressure on Japanese prices
again, so that deflation continues

5. Chinese growth has been supported
by massive stimulus, but this has
aggravated existing imbalances
India is growing strongly on the back
of robust domestic demand. However,
fiscal pressures remain and will act as
a constraint on potential growth
Brazil has been hit less than expected
by the crisis, and has recovered
rapidly on solid domestic consumption
Russia’s recovery is supported by the
rise in oil prices over the past year

6. Oil consumption growth will bounce
back in 2010, led by the developing
world. OECD consumption growth will
remain subdued
Output restraint and significant spare
capacity in OPEC producers
suggests ample supply. Any
escalation in geopolitical tensions
could disrupt our supply forecasts
Loose global monetary conditions
and investors’ search for return will
support prices

7. Rising emerging market incomes and
urbanisation will underpin medium-
term demand growth
Years of underinvestment, particularly
in agriculture, will push up prices
In the near-term, many raw materials
suffer from temporary supply shortfalls
Gold prices have been strong, fuelled
by vibrant investor demand, while
fundamentals remain weak. Persistent
economic uncertainty will support
prices in 2010-11

8. The Federal Reserve will not raise its
policy rate until the third quarter of
2012
The Greek crisis has triggered ECB
bond purchases; the central bank is
also now unlikely to raise rates until
the third quarter of 2012
Japanese policy rates will be held at
emergency levels until late 2012
The European fiscal crisis also raises
new concerns for banking sector
stability

9. Concerns about the US economy have
helped to weaken the US$ against the
euro in recent weeks
Expectations of earlier rate hikes in the
US and lingering concerns about the
fragility of the euro zone will support the
US$ against the euro over the longer
term
The yen will remain firm against the
US$, reflecting heightened risk
perceptions and Japanese institutional
investors’ home bias

10. - Sovereigns default as public debt spirals out of control 16
- Developed economies fall into a deflationary spiral 15
- The global economy has a double-dip recession as stimulus fades 15
- New asset bubbles burst, creating renewed financial turbulence 12
- Protectionism takes hold, undermining globalisation 12

11. - The Chinese economy crashes 10
- The euro zone breaks up 10
- Economic upheaval leads to widespread social and political unrest 9
+ Emerging-market growth surges 8
+ Confidence revives, prompting a stronger rebound in demand 8