The Global Macro Outlook 2017: in 10 pages and 32 charts

Please refer to page 72 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. GLOBAL Key forecasts, changes this month 1) Tables for real GDP growth, CPI, interest rates, currencies and commodity prices are on pages 11-13. Online access to our global macro forecasts is available on request 2) With the global industrial production growth trough now ten months ago (December 2015) and the OECD LI trough already eight months ago (February 2016), the question has become the durability of the up-cycle 3) We present 32 charts over ten pages, arguing that the cycle continues through 2017 4) Being less than halfway into the upswing, unsurprisingly, our forecasts are largely unchanged this month Analyst(s) Macquarie Capital Securities (Japan) Limited Peter Eadon-Clarke +81 3 3512 7850 peter.eadon-clarke@macquarie.com Macquarie Capital Markets Canada Ltd. David Doyle, CFA +1 416 848 3663 david.doyle@macquarie.com Macquarie Securities (Australia) Limited James McIntyre, CFA +61 2 8232 8930 james.mcintyre@macquarie.com Macquarie Capital Limited Larry Hu PhD +852 3922 3778 larry.hu@macquarie.com Jerry Peng +852 3922 3548 jerry.peng@macquarie.com Macquarie Capital Securities India (Pvt) Ltd Tanvee Gupta Jain +91 22 6720 4355 tanvee.guptajain@macquarie.com Macquarie Equities South Africa (Pty) Ltd Elna Moolman +27 11 583 2570 elna.moolman@macquarie.com Macquarie Capital (Europe) Limited Matthew Turner +44 20 3037 4340 matt.turner@macquarie.com Colin Hamilton +44 20 3037 4061 colin.hamilton@macquarie.com 18 October 2016 The Global Macro Outlook 2017: in 10 pages and 32 charts After a February 2016 trough, the OECD Leading Indicator has recovered for six months. Please see the data on page 2. The industrial cycle was, we believe, the principal cause of the 2014-16 deceleration in global growth, and will be the driver of the forecast 2017-18 recovery. The durability of this upswing is strengthened by: 1) the employment-led recovery underway in Europe, 2) the healing of private sector balance sheets in advanced economies, and 3) the expected second leg up in the US consumption growth story, pages 2-10. Global real GDP growth; Macquarie’s the long grinding cycle forecast Note: The Total-16 is the IMF’s 10-advanced and 6 EM economies. Forecasts are Macquarie where available, alternatively the IMF – please see Fig 170. The country weights use market exchange rates, not PPP Source: IMF, Macquarie Research, October 2016 Our 2016-18 global real GDP growth forecasts are 2.2%, 2.6% and 2.7%, respectively, a continuation of our “the long grinding cycle” of neither global lift-off nor slump. There are three core forecasts underpinning our outlook: 1) A slow and cautious trajectory of Fed Funds rate increases: Our base case has a 25bp increase in December and then 25bps every six months thereafter, eventually reaching 2% in 2019: 7 October 2016 US Economics Wages, construction & edging to full employment. 2) We believe the Chinese authorities have the willingness and ability to maintain control of the RMB. We expect the RMB to appreciate modestly in 2017: 7 September 2016 China Macro: What is missing from the Trilemma and the implications for the RMB. 3) Oil prices trade higher in 2017 and 2018, to (Brent) $61/bbl and $68/bbl, whilst commodity prices are mixed reflecting China’s housing sector softening, Fig.36. Short-term business-cycle judgements are more likely to succeed with a deep awareness of more medium- and longer-term issues. In global macroeconomics, there are a considerable number of the latter. We examine 20 of them from page 30; topical issues investigated in our Macq-ro insights reports. 2.602.772.692.532.222.652.702.662.620.01.02.03.04.05.020122013201420152016201720182019202016-TotalAverage 1980-2011, 3.0% p.aThe long grinding cycle, 2.5% p.aAverage 1980-2011,3.0% p.aThe long grinding cycle,2.5% p.a(Globalreal GDP growth) Macquarie Research The Global Macro Outlook 18 October 2016 2 The cycle through 2017 In a further 9 pages and 31 charts The global IP recovery is continuing post its December 2015 nadir of +0.4% YoY, with the latest reading being +2.0% YoY in August 2016. Please see the 12 October 2016 Commodities Comment. Our 2017 forecast is +2.4%. This drives a mild acceleration in global real GDP growth through 2017. This broadening of growth is supported by the OECD LI, below, which focuses on GDP and inflected in March 2016. The eurozone is now following the US into an employment-led recovery, from page 3. The US is expected to continue its long grinding cycle recovery, from page 5. China’s real GDP growth rate is forecast to fade gently (2016 6.7%, 2017 6.4%, 2018 6.0%), from page 7, whilst EM economies in general continue to grow at recent moderated rates. The global real interest rate is expected to rise with the cycle, from page 9. Fig 1