March 11, 2015
Economics Group
MONTHLY OUTLOOK
U.S. Overview
International Overview
Slow Start to Economic Growth in 2015
Global Economy Finds a Lower Gear
Output and employment growth are starting the year in two
entirely different ways. Expectations for real GDP growth have
been continuously scaled back due to the abrupt slowdown in
the energy sector, harsh winter weather in the Northeast and
the effects of the West Coast port slowdown. We now look for
real GDP to rise at just a 1.1 percent annualized rate in the first
quarter, which is at the low end of consensus estimates. Job
growth, however, seems to have been little affected by these
events. Nonfarm payrolls rose by 295,000 jobs in February,
following a 239,000-job gain the prior month. The
unemployment rate fell to 5.5 percent in February.
Since our prior monthly forecast, we have dialed back our
global GDP growth estimate for 2015 by a tenth of a
percentage point to 3.2 percent and for 2016 by two-tenths to
3.5 percent. We are not revising lower as a result of any major
shift in the drivers of global growth, but rather we are just
truing up our estimates after a run of economic data that have
been disappointing on balance.
The slower pace for first quarter real GDP growth is a bit
deceiving. Much of the deceleration results from a further
widening in the trade deficit and less inventory building. A
drop in government spending also produces a slight drag
during the quarter. Private final domestic demand is much
healthier and is expected to rise at a 2.0 percent pace during
the quarter and climb 2.8 percent for the year. Real GDP
growth is also expected to be much stronger for the year,
climbing 2.7 percent. Final demand remains solid outside of
the oil patch and the positive effects of lower energy prices
should build over the course of the year. Government spending
should also perk up a bit.
The split between GDP growth and employment conditions
will further complicate the Fed’s decision as to when to begin
to raise the federal funds rate. With final demand strong, we
still expect the initial move to come in June and look for
interest rates to rise modestly across the curve from current
levels over the course of 2015.
One of the top global economic worries is what happens next
in Europe. While the Greek situation remains touch-and-go,
the outlook for the Eurozone is brightening. The combination
of quantitative easing by the European Central Bank (ECB), a
weaker euro and lower oil prices play to Europe’s benefit.
There was a time not long ago when the Bank of England
(BoE) was expected to beat the Federal Reserve to the punch in
raising rates. The U.K. economy continues to hum along but,
in the absence of wage inflation, a rate hike from the BoE does
not appear to be in the cards anytime soon.
In Asia, economic growth continued with Japanese real GDP
growth bouncing back in the fourth quarter after consecutive
declines in prior quarters. China’s GDP growth target was
reduced but this may make economic reform easier.
The Russian economy is likely in recession at present, as it
struggles to get its oil-centric, export-oriented economy back
on its feet. Some of Latin America’s hobbled economies are on
the mend, the recession in Brazil will likely be mild when
compared to Russia, and we are forecasting better growth in
2016 for both Brazil and Mexico.
Real Global GDP Growth
U.S. Real GDP
Bars = CAGR
Year-over-Year Percent Change, PPP Weights
Line = Yr/Yr Percent Change
10%
10%
7.5%
7.5%
GDP - CAGR: Q4 @ 2.2%
8%
GDP - Yr/Yr Percent Change: Q4 @ 2.4%
6%
8%
6%
Forecast
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
2000
-10%
2002
2004
2006
2008
2010
2012
2014
6.0%
6.0%
Period Average
4.5%
4.5%
3.0%
3.0%
1.5%
1.5%
0.0%
0.0%
-1.5%
2016
-1.5%
1980
Source: U.S. Department of Commerce, IMF and Wells Fargo Securities, LLC
This report is available on wellsfargo.com/economics and on Bloomberg WFRE.
1985
1990
1995
2000
2005
2010
2015
Economics Group
U.S. Outlook
Strength Is a Matter of Perspective
Wells Fargo Securities, LLC
Business fixed investment also appears to be holding up well,
despite the pullback in energy-related projects. The bulk of the
impact of cutbacks in energy investment will show up in
spending on nonresidential structures, which is where the
effect of oil drilling shows up. Spending on business equipment
will also be affected but should still remain positive in the first
quarter. For the year, we are expecting equipment outlays to
rise a solid 4.8 percent. Spending on intellectual property will
rise by an even more robust 6.8 percent.
Views on how strong the U.S. economy is at the start of 2015
are as opposed as they are about whether that dress was blue
and black or white and gold. The headline numbers and
underlying details provide ample support for all sides. Growth
has clearly improved but long-running concerns about the
labor market are also still present. We come down on the side
that economic growth has broadened and strengthened to the
point that the zero-interest rate policy enacted at the height of
the financial crisis is no longer necessary.
Spending on business equipment should be sustained by pentup demand. The equipment capital stock is currently the oldest
that it has been in 20 years and the capacity utilization rate for
manufacturers has risen back near its long-run average.
Commercial construction is also showing signs of
strengthening, although spending has so far gotten off to a slow
start in 2015.
Our expectations for first-quarter real GDP growth have been
slashed further during the past month. Real GDP growth is
now expected to rise at just a 1.1 percent annualized pace in the
first quarter compared to 2.2 percent growth in the fourth
quarter. Most of the deceleration is due to a further widening
in the trade deficit and less inventory building. In addition, as
we warned earlier, the bulk of the negative effects of lower oil
prices are showing up fairly early, while the benefits from lower
oil prices will gradually accrue over the course of 2015. Finally,
as we pointed out last month, the energy sector is extremely
capital intensive. So the cuts in energy exploration that have
been announced in recent months have so far had only a
relatively modest impact on job growth.
The rapid appreciation of the U.S. dollar will also likely create
some challenges for U.S. manufacturers. Producers of steel and
other commodity-like products have already seen an onslaught
of imports in recent months and U.S. exports will clearly be at a
disadvantage with lower priced products from Europe and
Latin America. We now see the trade deficit widening over the
course of 2015 and subtracting 0.4 percentage points from real
GDP growth.
While the first quarter is off to a slow start, our forecast for
2015 is roughly the same as it was earlier. Real GDP is expected
to rise 2.7 percent in 2015 and 3.0 percent in 2016. Consumer
spending is growing solidly. Lower energy prices have not
provided as much of an immediate lift to outlays as many had
expected but are still clearly boosting spending. Restaurants
have been a big beneficiary, with sales surging 13.1 percent over
the past year. Gains elsewhere have been less dramatic but that
should be expected given that the savings from lower gasoline
prices accrue gradually from week to week. Job and income
growth are the more important drivers and both remain solid.
Despite a rebound in government outlays in coming quarters,
the public sector remains a downside risk over the next two
years. Beginning in the fourth quarter of this year, the full set
of discretionary budget cuts, known as budget sequestration,
enacted by Congress in 2011 will go back into effect in the
absence of Congressional action. The magnitude of the acrossthe-board sequestration cuts was rolled back under the RyanMurray agreement that was forged in 2013, and we expect
some of the cuts will likely be reversed again.
Retail Sales
Age of Capital Stock
$60
$60
Eating & Drinking Places: Jan @ $50.5B
Gasoline Stations: Jan @ $35.3B
$50
$50
$40
$40
$30
$30
$20
$20
$10
$10
Thousands
Thousands
Billions of Dollars, Seasonally Adjusted
Average Age of Private Equipment Fixed Assets, Years
7.8
7.8
7.6
7.6
7.4
7.4
7.2
7.2
7.0
7.0
6.8
6.8
6.6
6.6
6.4
6.4
Average Age: 2013 @ 7.5
$0
$0
00
02
04
06
08
10
12
6.2
14
6.2
80
84
88
92
96
00
04
08
12
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
2
Economics Group
U.S. Economic Forecast
Wells Fargo Securities, LLC
Wells Fargo U.S. Economic Forecast
Q4 2010 q12015
Actual
2015
Forecast
2013
1Q
2Q
2014
3Q
4Q
1Q
2Q
Actual
2015
3Q
4Q
1Q
2Q
2016
3Q
4Q
1Q
2Q
2012
3Q
Forecast
2013
2015
2016
4Q
#### ####
Real Gross Domestic Product (a)
2014
#### ####
#### ####
#### ####
2.7
1.8
4.5
3.5
-2.1
4.6
5.0
2.2
1.1
3.0
2.9
3.0
3.0
3.0
3.1
3.0
2.3
#### ####
2.2
#### ####
2.4
#### ####
2.7
#### ####
3.0
Personal Consumption
3.6
1.8
2.0
3.7
1.2
2.5
3.2
4.2
3.3
2.8
2.8
2.8
2.7
2.7
2.7
2.7
1.8
#### ####
2.4
#### ####
2.5
#### ####
3.2
#### ####
2.7
Business Fixed Investment
1.5
1.6
5.5
10.4
1.6
9.7
8.9
4.8
3.5
4.8
6.2
6.2
5.7
6.3
6.5
6.3
7.2
#### ####
3.0
#### ####
6.3
#### ####
5.5
#### ####
6.0
Equipment
4.8
1.5
4.7
14.1
-1.0
11.2
11.0
0.9
3.5
3.7
6.0
5.4
5.7
6.0
6.2
6.0
6.8
#### ####
4.6
#### ####
6.5
#### ####
4.8
#### ####
5.7
Intellectual Property Products
6.4
-1.9
2.8
3.6
4.7
5.5
8.8
10.9
6.5
4.6
4.6
4.6
5.0
5.0
5.0
5.0
3.9
#### ####
3.4
#### ####
4.9
#### ####
6.8
#### ####
4.9
-11.5
7.3
11.2
12.8
2.9
12.6
4.8
5.0
-0.7
7.7
9.2
10.3
6.5
8.5
9.0
8.5
13.1
#### ####
-0.5
#### ####
8.1
#### ####
5.3
#### ####
8.4
7.8
19.0
11.2
-8.5
-5.3
8.8
3.3
3.3
2.0
12.0
13.0
12.0
11.0
11.5
12.0
12.0
13.5
#### ####
11.9
#### ####
1.6
#### ####
6.7
#### ####
11.8
#### ####
-2.0
#### ####
-0.2
#### ####
0.4
#### ####
Structures
Residential Construction
Government Purchases
-3.9
0.2
0.2
-3.8
-0.8
1.7
4.4
-1.8
-1.5
1.1
1.4
1.6
1.8
2.0
2.2
2.4
-1.4
-427.2
-446.0
-424.6
-384.0
-447.2
-460.4
-431.4
-476.4
-495.8
-503.4
-519.5
-534.9
-548.0
-564.1
-581.8
-602.6
-452.5
#### ####
-420.5
#### ####
-453.9
#### ####
-513.4
#### ####
-0.1
-0.5
0.6
1.1
-1.7
-0.3
0.8
-1.2
-0.5
-0.2
-0.4
-0.4
-0.3
-0.4
-0.4
-0.5
0.0
#### ####
0.2
#### ####
-0.2
#### ####
-0.4
#### ####
-0.4
33.4
43.4
95.6
81.8
35.2
84.8
82.2
88.4
73.0
77.0
75.0
75.0
75.0
75.0
75.0
75.0
57.1
#### ####
63.6
#### ####
72.7
#### ####
75.0
#### ####
75.0
0.7
0.3
1.5
-0.3
-1.2
1.4
0.0
0.1
-0.4
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.1
#### ####
0.0
#### ####
0.1
#### ####
0.0
#### ####
0.0
Nominal GDP (a)
4.2
2.9
6.2
5.0
-0.8
6.8
6.4
2.3
-0.9
4.7
4.9
5.0
5.0
5.1
5.3
5.1
4.2
#### ####
3.7
#### ####
3.9
#### ####
3.2
#### ####
5.1
Real Final Sales
2.0
1.5
3.0
3.9
-1.0
3.2
5.0
2.1
2.0
2.9
3.0
3.0
3.0
3.0
3.1
3.0
2.2
#### ####
2.2
#### ####
2.3
#### ####
2.8
#### ####
3.0
Retail Sales (b)
4.1
4.5
4.4
3.8
2.6
4.6
4.6
4.1
2.9
1.9
2.0
2.8
4.8
4.8
4.7
4.6
5.1
#### ####
4.2
#### ####
4.0
#### ####
2.4
#### ####
4.7
#### ####
#### ####
Net Exports
Pct. Point Contribution to GDP
Inventory Change
Pct. Point Contribution to GDP
#### ####
#### ####
#### ####
#### ####
Inflation Indicators (b)
#### ####
#### ####
#### ####
#### ####
1.8
#### ####
#### ####
#### ####
#### ####
-574.1
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
PCE Deflator
1.4
1.1
1.2
1.0
1.1
1.6
1.5
1.1
0.2
0.1
0.3
0.9
1.9
2.0
2.0
2.1
1.8
#### ####
1.2
#### ####
1.3
#### ####
0.4
#### ####
2.0
Consumer Price Index
1.7
1.4
1.5
1.2
1.4
2.1
1.8
1.2
-0.2
-0.3
0.0
0.8
2.2
2.3
2.4
2.4
2.1
#### ####
1.5
#### ####
1.6
#### ####
0.1
#### ####
2.3
"Core" Consumer Price Index
1.9
1.7
1.7
1.7
1.6
1.9
1.8
1.7
1.6
1.4
1.5
1.6
1.7
1.8
1.8
1.9
2.1
#### ####
1.8
#### ####
1.7
#### ####
1.6
#### ####
1.8
Producer Price Index (Final Demand)
1.5
1.2
1.5
1.2
1.4
2.0
1.8
1.3
-0.2
-0.2
0.0
0.8
2.2
2.3
2.4
2.4
1.8
#### ####
1.4
#### ####
1.6
#### ####
0.1
#### ####
2.3
Employment Cost Index
1.9
1.9
1.9
2.0
1.8
2.0
2.2
2.3
2.5
2.3
2.3
2.5
2.6
2.7
2.7
2.8
1.9
#### ####
1.9
#### ####
2.1
#### ####
2.4
#### ####
2.7
#### ####
#### ####
Real Disposable Income (a)
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
-12.6
3.8
2.0
0.2
3.4
3.1
2.4
3.8
6.8
3.0
2.7
2.6
2.7
2.5
2.5
2.5
3.0
#### ####
-0.2
#### ####
2.5
#### ####
3.9
#### ####
2.6
Nominal Personal Income (b)
2.4
2.6
3.0
0.1
3.6
3.7
4.0
4.5
4.4
4.4
4.6
5.2
5.3
5.0
4.8
4.3
5.2
#### ####
2.0
#### ####
4.0
#### ####
4.6
#### ####
4.8
Industrial Production (a)
4.2
1.9
2.5
4.9
3.9
5.7
4.1
4.3
3.0
4.9
3.5
3.1
3.5
3.7
3.5
3.5
3.8
#### ####
2.9
#### ####
4.2
#### ####
4.0
#### ####
3.6
77.7
77.8
77.9
78.4
78.6
79.1
79.3
79.4
79.8
80.0
80.1
80.2
80.2
80.2
80.2
80.2
77.3
#### ####
77.9
#### ####
79.1
#### ####
80.0
#### ####
80.2
Corporate Profits Before Taxes (b)
3.1
3.9
4.9
4.7
-4.8
0.1
1.4
3.4
4.2
4.2
4.7
3.7
3.6
3.3
3.4
3.4
11.4
#### ####
4.2
#### ####
0.1
#### ####
4.2
#### ####
3.4
Corporate Profits After Taxes
2.5
6.0
4.5
3.4
-11.8
-8.9
-6.3
-2.8
1.2
4.8
4.3
5.1
5.5
5.7
5.8
4.9
9.1
#### ####
4.1
#### ####
-7.4
#### ####
3.9
#### ####
Capacity Utilization
#### ####
#### ####
#### ####
#### ####
5.4
-307.2
90.7
-170.4
-172.6
-240.7
47.4
-117.5
-176.7
-113.3
-60.0
-160.0
-170.0
-150.0
-115.0
-140.0
-160.0
-1089.2
Current Account Balance (d)
-105.5
-106.1
-101.3
-87.3
-102.1
-98.4
-100.3
-100.0
-95.0
-95.0
-100.0
-105.0
-110.0
-115.0
-120.0
-125.0
-460.8
#### ####
-400.3
#### ####
-400.8
#### ####
-395.0
#### ####
-470.0
76.2
77.5
75.2
76.4
76.9
75.9
81.3
85.1
91.3
92.5
93.8
95.0
96.0
97.0
98.0
99.0
73.5
#### ####
75.9
#### ####
78.5
#### ####
93.1
#### ####
97.5
#### ####
#### ####
Nonfarm Payroll Change (f)
Unemployment Rate
211
178
190
217
193
284
237
324
258
225
215
210
200
197
195
190
188
#### ####
-483.3
#### ####
#### ####
#### ####
Federal Budget Balance (c)
Trade Weighted Dollar Index (e)
-680.2
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
199
#### ####
-510.0
#### ####
-575.0
#### ####
#### ####
260
#### ####
#### ####
#### ####
227
#### ####
195
7.7
7.5
7.2
7.0
6.6
6.2
6.1
5.7
5.5
5.4
5.3
5.2
5.1
5.0
4.9
4.8
8.1
#### ####
7.4
#### ####
6.2
#### ####
5.4
#### ####
5.0
Housing Starts (g)
0.95
0.86
0.88
1.03
0.93
0.99
1.03
1.06
1.07
1.13
1.21
1.24
1.26
1.27
1.28
1.33
0.78
#### ####
0.92
#### ####
1.00
#### ####
1.15
#### ####
1.31
Light Vehicle Sales (h)
15.3
15.5
15.6
15.6
15.7
16.5
16.7
16.7
16.5
17.0
17.2
17.3
17.2
17.1
17.0
16.9
14.4
#### ####
15.5
#### ####
16.4
#### ####
17.0
#### ####
17.1
112.2
103.3
109.1
109.1
107.6
109.5
103.7
77.2
55.0
57.5
60.0
62.0
64.0
66.0
67.0
68.0
111.3
#### ####
108.4
#### ####
99.5
#### ####
58.6
#### ####
66.3
Crude Oil - Brent - Front Contract (i)
Quarter-End Interest Rates (j)
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
#### ####
Federal Funds Target Rate
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.50
0.75
1.00
1.25
1.75
2.25
2.75
0.25
#### ####
0.25
#### ####
0.25
#### ####
0.63
#### ####
3 Month LIBOR
0.28
0.27
0.25
0.25
0.23
0.23
0.24
0.26
0.30
0.70
0.95
1.20
1.45
1.95
2.45
2.85
0.43
#### ####
0.27
#### ####
0.23
#### ####
0.79
#### ####
2.18
Prime Rate
3.25
3.25
3.25
3.25
3.25
3.25
3.25
3.25
3.25
3.50
3.75
4.00
4.25
4.75
5.25
5.75
3.25
#### ####
3.25
#### ####
3.25
#### ####
3.63
#### ####
5.00
Conventional Mortgage Rate
3.57
4.07
4.49
4.46
4.34
4.16
4.16
3.86
3.60
3.72
3.87
3.89
4.07
4.39
4.86
4.90
3.66
#### ####
3.98
#### ####
4.17
#### ####
3.77
#### ####
4.56
3 Month Bill
0.07
0.04
0.02
0.07
0.05
0.04
0.02
0.04
0.14
0.56
0.86
1.15
1.41
1.80
2.28
2.80
0.09
#### ####
0.06
#### ####
0.03
#### ####
0.68
#### ####
2.07
6 Month Bill
0.11
0.10
0.04
0.10
0.07
0.07
0.03
0.12
0.26
0.62
0.92
1.20
1.52
1.83
2.36
2.83
0.13
#### ####
0.09
#### ####
0.06
#### ####
0.75
#### ####
2.14
1 Year Bill
0.14
0.15
0.10
0.13
0.13
0.11
0.13
0.25
0.29
0.68
0.98
1.22
1.56
1.87
2.43
2.86
0.17
#### ####
0.13
#### ####
0.12
#### ####
0.79
#### ####
2.18
2 Year Note
0.25
0.36
0.33
0.38
0.44
0.47
0.58
0.67
0.71
0.89
1.08
1.28
1.74
2.05
2.47
2.88
0.28
#### ####
0.31
#### ####
0.46
#### ####
0.99
#### ####
2.28
5 Year Note
0.77
1.41
1.39
1.75
1.73
1.62
1.78
1.65
1.69
1.79
1.90
1.99
2.22
2.33
2.62
2.92
0.76
#### ####
1.17
#### ####
1.64
#### ####
1.84
#### ####
2.52
10 Year Note
1.87
2.52
2.64
3.04
2.73
2.53
2.52
2.17
2.20
2.36
2.40
2.45
2.51
2.76
2.88
3.04
1.80
#### ####
2.35
#### ####
2.54
#### ####
2.35
#### ####
2.80
30 Year Bond
3.10
3.52
3.69
3.96
3.56
3.34
3.21
2.75
2.80
2.91
2.98
3.08
3.17
3.35
3.57
3.65
2.92
#### ####
3.45
#### ####
3.34
#### ####
2.94
#### ####
3.43
#### ####
Forecast as of: March 11, 2015
Notes: (a) C ompound Annual Growth Rate Quarter-over-Quarter
(b) Year-over-Year Percentage C hange
(c) Quarterly Sum - Billions USD; Annual Data Represents Fiscal Yr.
(d) Quarterly Sum - Billions USD
(e) Federal Reserve Major C urrency Index, 1973=100 - Quarter End
#### ####
#### ####
2.00
#### ####
(f) Average Monthly C hange
(g) Millions of Units - Annual Data - Not Seasonally Adjusted
(h) Quarterly Data - Average Monthly SAAR; Annual Data - Actual Total Vehicles Sold
(i) Quarterly Average of Daily C lose
(j) Annual Numbers Represent Averages
Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, IHS Global Insight and Wells Fargo Securities, LLC
3
Economics Group
International Outlook Wells Fargo Securities, LLC
The United States continues to be the locomotive of the global
economy. As discussed in our domestic outlook section, U.S.
economic growth has broadened and strengthened and that
momentum in the world’s largest economy is a net positive for
the global outlook. The relative outperformance of the U.S.
economy and divergent policy path for the Federal Reserve
relative to the expected trajectory of other major central banks
has contributed to a stunning run-up in the value of the U.S.
dollar. Since July, the trade-weighted value of the dollar has
appreciated roughly 21 percent. That rivals the run-up in the
value of the greenback that we saw at the height of the financial
crisis. Between July 2008 and March 2009, the trade-weighted
dollar rallied roughly 23 percent.
Slow Global Growth
In Europe, recent economic headlines have revolved around
the latest developments in Greece, where the newly elected
government’s willingness to cooperate with European finance
ministers ebbs and flows. While the problems in Greece should
not be discounted, developments in Europe are moving in a
direction that is positive for growth prospects.
The drop in oil prices and the advent of outright deflation in
the Eurozone has compelled the ECB to at last embrace
quantitative easing. Many European countries are net oil
importers, so the decline in prices should boost discretionary
spending. The euro, down more than 14 percent versus the
dollar just since December, likely has room for further
depreciation as the quantitative easing program gets underway,
which should support export growth and perhaps boost
interest in European tourism from foreign travelers.
Growth prospects are not as unequivocally positive in other
foreign economies, particularly in the developing world where
our largest revisions took place this month. One of the major
developments in the past few weeks has been the
announcement from the Chinese government that it is now
targeting GDP growth of roughly 7.0 percent, versus roughly
7.5 percent previously.
Across the English Channel, economic growth in the United
Kingdom has been outpacing the Eurozone in the past couple
years, which has driven the unemployment rate to its lowest
level since 2008. Unfortunately, the firming in the labor
market has not yet translated into wage inflation. The lack of
wage pressure and falling oil prices has had the predictable
effect of pushing down inflation and, consequently, a widely
expected tightening by the Bank of England has been pushed
back at least through the end of this year, in our view.
The Chinese government is in the midst of a transition in which
growth is being driven more by domestic consumer demand
rather than business spending fueled by surging bank loans to
the Chinese corporate sector. In some ways, the slightly lower
growth target removes some pressure to grow while these
reforms are implemented. The People’s Bank of China has
eased policy somewhat in recent months. While we look for
further policy accommodation this year, we do not anticipate a
wholesale relaxation in policy as we saw during 2008-2009.
Despite the fact that economic growth in Japan has been
negative in three of the past five quarters, we suspect that real
GDP growth there will stay positive for the rest of the year. The
approaching anniversary of the unpopular consumption tax
hike in April will result in a drop in the year-over-year inflation
rate. Even modest wage gains will result in higher real income,
which should underpin consumer spending in Japan later this
year. If the drop in inflation is more than temporary the Bank
of Japan will not hesitate to increase the pace of its QQE as it
did in October 2014.
Growth expectations for India have waned somewhat in recent
months as well. The newly elected government has achieved
some of the promised reforms, but a return to double-digit
percentage growth in India is not likely until substantive
economic reforms are enacted.
Japanese Consumer Price Index
U.S. Trade Weighted Dollar Major Index
Year-over-Year Percent Change
March 1973=100
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-3%
94
96
98
90
90
85
85
80
80
75
75
70
70
Major Currency Index: Mar-06 @ 91.6
CPI Forecast
-3%
92
95
-2%
CPI: Jan @ 2.4%
90
95
00
02
04
06
08
10
12
14
16
65
2004
65
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: IHS Global Insight, Bloomberg, LP and Wells Fargo Securities, LLC
4
Economics Group
International Economic Forecast
Wells Fargo Securities, LLC
Wells Fargo International Economic Forecast
(Year-over-Year Percent C hange)
GDP
CPI
2014
2015
2016
2014
2015
2016
Global (PPP weights)
Global (Market Exchange Rates)
3.2%
2.7%
3.2%
2.8%
3.5%
3.1%
3.6%
n/a
3.3%
n/a
3.6%
n/a
Advanced Economies 1
United States
Eurozone
United Kingdom
Japan
Korea
Canada
1.8%
2.4%
0.9%
2.6%
0.0%
3.4%
2.5%
2.3%
2.7%
1.4%
2.5%
1.0%
3.4%
1.9%
2.6%
3.0%
1.8%
2.4%
1.5%
3.8%
2.4%
1.6%
1.6%
0.4%
1.5%
2.7%
1.3%
1.9%
0.4%
0.1%
-0.1%
0.8%
1.1%
1.1%
0.4%
1.9%
2.3%
1.2%
1.7%
1.5%
2.6%
2.1%
Developing Economies 1
China
India2
Mexico
Brazil
Russia
4.4%
7.4%
6.9%
2.1%
-0.1%
0.4%
4.0%
6.8%
7.4%
2.4%
-0.2%
-3.7%
4.4%
6.6%
7.0%
2.8%
0.5%
0.7%
5.5%
2.0%
n/a
4.0%
6.3%
7.8%
5.9%
1.5%
5.2%
3.4%
7.6%
15.1%
5.3%
2.1%
5.4%
3.6%
6.8%
5.7%
Forecast as of: March 11, 2015
1
2
Aggregated Using PPP Weights
Forecasts Refer to Fiscal Year
Wells Fargo International Interest Rate Forecast
(End of Quarter Rates)
3-Month LIBOR
2015
U.S.
Japan
Euroland1
U.K.
Canada2
Q1
0.30%
0.10%
0.03%
0.55%
1.00%
Q2
0.70%
0.10%
0.03%
0.55%
1.00%
10-Year Bond
2016
Q3
0.95%
0.10%
0.03%
0.65%
1.00%
Q4
1.20%
0.10%
0.03%
0.95%
1.00%
Q1
1.45%
0.10%
0.03%
1.15%
1.05%
2015
Q2
1.95%
0.10%
0.05%
1.20%
1.25%
Q1
2.20%
0.38%
0.38%
1.95%
1.60%
Q2
2.36%
0.40%
0.40%
2.10%
1.70%
Q3
2.40%
0.42%
0.45%
2.20%
1.80%
Q4
2.45%
0.45%
0.55%
2.30%
1.90%
2016
Q1
2.51%
0.50%
0.70%
2.50%
2.00%
Q2
2.76%
0.55%
0.85%
2.60%
2.30%
Forecast as of: March 11, 2015
1
10-year German Government Bond Yield
2
3-Month C anada Bankers' Acceptances
Source: IHS Global Insight, IMF and Wells Fargo Securities, LLC
5
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research,
Economics & Strategy
(704) 410-1801
(212) 214-5070
[email protected]
John E. Silvia, Ph.D.
Chief Economist
(704) 410-3275
[email protected]
Mark Vitner
Senior Economist
(704) 410-3277
[email protected]
Jay H. Bryson, Ph.D.
Global Economist
(704) 410-3274
[email protected]
Sam Bullard
Senior Economist
(704) 410-3280
[email protected]
Nick Bennenbroek
Currency Strategist
(212) 214-5636
[email protected]
Eugenio J. Alemán, Ph.D.
Senior Economist
(704) 410-3273
[email protected]
Anika R. Khan
Senior Economist
(704) 410-3271
[email protected]
Azhar Iqbal
Econometrician
(704) 410-3270
[email protected]
Tim Quinlan
Economist
(704) 410-3283
[email protected]
Eric Viloria, CFA
Currency Strategist
(212) 214-5637
[email protected]
Sarah Watt House
Economist
(704) 410-3282
[email protected]
Michael A. Brown
Economist
(704) 410-3278
[email protected]
Michael T. Wolf
Economist
(704) 410-3286
[email protected]
Mackenzie Miller
Economic Analyst
(704) 410-3358
[email protected]
Erik Nelson
Economic Analyst
(704) 410-3267
[email protected]
Alex Moehring
Economic Analyst
(704) 410-3247
[email protected]
Donna LaFleur
Executive Assistant
(704) 410-3279
[email protected]
Cyndi Burris
Senior Admin. Assistant
(704) 410-3272
[email protected]
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