Fireside Chat, Interview
Speaker Series for Interns: Senior Economists from Global Investment Research
- Participants are expected to gain insights into economic and asset market forecasts, with the current session serving as the first in a series of summer events for interns.
- The global economic environment is viewed as significantly less severe than 2008 but remains unsatisfactory, with expectations for cyclical improvement toward a normal state requiring further stimulus in the United States and Europe.
- Policy responses are considered by some to have been conventional and insufficiently preemptive, though aggressive steps by central banks are anticipated, alongside a belief that the most likely disruption will stem from economic variables rather than Fed communication.
- First-quarter GDP figures are projected to be revised downward to approximately -2% for the fourth quarter based on subsequent indicators, while current activity is expected to show continued improvement starting from the second quarter of 2013 through May 2014.
- Economic acceleration is forecast to reach 2.7% by June, with further improvement in activity anticipated for the second half of the year and heading into 2015.
- The housing sector is expected to see a recovery driven by the end of the mortgage rate shock, strong fundamentals, and demographic shifts among 18-to-34-year-olds over the next few years.
- Capital spending is projected to re-accelerate over the next couple of years, with underlying data expected to underestimate the actual on-the-ground improvement.
- Equity markets are expected to see more upside over the next couple of years, provided bond yields remain low and growth recovers, with modest further progress anticipated.
- Federal Reserve rate hikes are expected to occur, potentially as early as mid-to-late 2015 or somewhat before early 2016, with an initial slow pace that may accelerate later as rates normalize to levels between 3.5% and 4%.
- The European economy is expected to improve very gradually with aggregate growth of about 1% this year and 1.5% next year, characterized by diverging performance between 2% growth in Germany and 1% or less in the periphery, alongside expectations for limited further ECB easing.
- Japan is forecast to expand in 2014 and 2015 despite a sharp decline in the second-quarter GDP resulting from consumption tax changes, though aggressive fiscal retrenchment is discouraged.
- Emerging markets are expected to remain uncomfortable for another 12 to 18 months as growth slows and spending is restrained, with the difficult adjustment period estimated to be half to two-thirds complete.
- Despite current underperformance, the structural view that emerging markets will drive more global growth than the developed world is expected to remain intact, with opportunities in developed markets currently judged to be better across most segments.