Global Economic Outlook

Global Economic Outlook4th Quarter 2016 Global Economic OutlookIntroduction | 2By Ira KalishIn the Q4 issue of the Global Economic Outlook, our far-flung economists offer their views on the United States, Eurozone, China, Japan, India, Rus-sia, Brazil, Canada, and helicopter money.United States: Growth remains muted, but finally good news on family income | 6By Patricia BuckleyGrowth in the first half of 2016 was slow, although preliminary data are pointing to a stronger second half. Continued job growth and increasing family incomes bode well for future demand.Eurozone: Dealing with Brexit | 12By Alexander BörschThe direct economic effects of Brexit have so far been relatively muted, thanks to central banks’ decisions. But this does not imply there will be no serious long-term consequences, as risks stemming from a potential disruption of trade relations have not disappeared.China: Debating debt and investment | 18By Ira KalishNew studies debate whether China’s debt level is excessive and dangerous, and whether the massive investment in infrastructure did actually create economic value. Meanwhile, new data from the Chi-nese government indicate that the economy appears to be stabilizing.Japan: Two arrows too many | 22By Akrur Barua The Bank of Japan seems to have run out of moves to strengthen the economy through monetary pol-icy. Quantitative easing and negative interest rates have had little effect. Now the bank is targeting the long end of the yield curve by keeping 10-year bond yields close to zero.India: Finding new feet through reforms | 30By Rumki Majumdar While sluggish investment, mining and construc-tion activities, and farm output in Q1 raised concerns about the Indian economy, recent reforms, such as the bankruptcy code and the goods and services tax, are expected to improve business senti-ments and ease of doing business.Russia: Too early for optimism | 38By Lester Gunnion Signs indicate that Russia’s recession might be coming to an end. But despite some good news, several concerns remain: Foreign investment is down to a trickle, international sanctions continue to weigh on the energy sector, and real incomes are still in decline.Brazil: Finally, that elusive rate cut | 46By Akrur Barua Brazil’s central bank cut its key policy rate for the first time in four years in October. After the recent tumult in the economy, a decline in interest rates should be a welcome break for consumers and busi-nesses. But any further cuts depend on inflation, which is still higher than the bank’s target range.Global Economic OutlookCONTENTSII 4th Quarter 2016Canada: Waiting for the European Union | 54By Daniel BachmanIn 2014, Canada and the European Union signed an ambitious trade agreement, CETA. Two years on, the treaty has yet to come into effect. What’s caus-ing the hold-up?Special topic: Helicopter money | 60By Akrur BaruaHelicopter money joins other unorthodox policies, such as negative interest rates, being floated to encourage economic growth. In theory, helicopter money could provide a better alternative to quanti-tative easing.Economic indices | 70Additional resources | 73About the authors | 74Contact information | 75Illustrations by Stephanie Dalton CowanCONTENTSIII Global Economic OutlookIntroductionBy Ira KalishTHE global economy has lately been character-ized by relatively slow growth, weak business investment, persistent deflationary pressures, and slow growth of cross-border trade in goods and services. These issues have led to concerns that the current policy mix in major economies is not up to the task of fueling faster growth. Indeed, in the ma-jor developed economies, monetary policy seems to be the only game in town, with few countries fo-cused on fiscal or structural actions. In this issue of Deloitte’s quarterly Global Economic Outlook, our far-flung economists offer views on each of the ma-jor economies in the world. A common theme ap-pears to be either inadequacy of policy actions or uncertainty about what policy makers will do. We begin with our article on the US economy, in which Patricia Buckley says that growth is likely to be better in the second half than in the first. She notes that the sharp decline in inventories sets the stage for a revival of growth. In addition, she points to the continued strength of the labor market as fu-eling consumer spending. Plus, an unusually large increase in real household income not only bodes well for spending but also helps to reverse the rise in income inequality. Patricia concludes that the US economy remains strong and that the major risks to the economy come from external events as well as the upcoming presidential election. Alexander Börsch offers our next article on the Eu-rozone. He focuses mainly on the potential impact of the UK Brexit referendum on the other European economies. He notes that the initial fears about fi-nancial market disruption have been allayed by a quick response from the European Central Bank. He also discusse