Please refer to page 77 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 13-15. Online access to our global macro forecasts is available on request. 2) We continue to forecast a trend Yen appreciation and this month have moved the forecast stronger, e.g. end 2017 ¥/US$ 108 (110), end 2018 106 (108) 3) The persistent current account surpluses across Factory Asia support stronger local currencies; we have revised stronger the NT$ in particular 4) Our 2018-20 US real GDP growth forecasts are now 1.9% YoY, 1.6% YoY and 1.4% YoY respectively Analyst(s) Macquarie Capital Securities (Japan) Limited Peter Eadon-Clarke +81 3 3512 7850 peter.eadon-clarke@macquarie.com Nara Song +81 3 3512 7878 nara.song@macquarie.com Macquarie Capital Markets Canada Ltd. David Doyle, CFA +1 416 848 3663 david.doyle@macquarie.com Neil Shankar +1 416 607 5055 neil.shankar@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 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 matthew.turner@macquarie.com 20 June 2017 The Global Macro Outlook Slower global growth in 2018 & 2019 The cycle rolls: we forecast 2018 and 2019 global real GDP growth (2.7% and 2.6% respectively) to slow versus 2017 (2.9%). Nonetheless, Global real GDP growth is forecast to remain in “the long grinding cycle” of 2.5-3.0% pa, below. Demographic headwinds: With the high-frequency industrial sector data beginning to roll over, we believe it is time to focus back on two underlying trends: weak labour force growth in the leading economies and financial repression for decades as governments struggle to pay for rising entitlement spending. We forecast moderate trend growth and low real and nominal bond yields globally. The three principal reasons why global real GDP growth is forecast to slow over 2018-19 are: 1) A subdued global capex cycle, e.g. 12 June 2017 Fortress America: Yellow warning lights for the durable expansion 2) The gravitational pull of aging demographics working through both labour force growth and labour productivity, e.g. just 1.4% pa trend US real GDP growth 3) The ongoing growth fade in China Global real GDP growth: Macquarie’s long grinding cycle forecast Note: The 16-Total is the IMF’s 10-Advanced and 6 EM economies. Forecasts are Macquarie where available, alternatively the IMF (see pages 73 and 74). The country weights use market exchange rates, not PPP Source: IMF, Macquarie Research, June 2017 The investment rate and its quality is a key focus for estimating trend growth. The 8 June 2017 Factory Asia’s 2018-20 outlook concluded that East Asia’s growth will continue to slow for three key reasons: deteriorating demographics, deteriorating quality of investment and the rising burden of maintenance capex, please see pages 7-8. 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 24 of them from page 32; topical issues investigated in our Macq-ro insights reports. 2.672.612.892.922.682.892.702.592.570.01.02.03.04.05.020122013201420152016201720182019202016-TotalAverage 1980-2011, 3.0% p.aThe long grinding cycle, 2.5% p.a to 3.0% p.aAverage 1980-2011,3.0% p.aThe long grinding cycle,2.5% p.a to 3.0% p.a(Globalreal GDP growth) Macquarie Research The Global Macro Outlook 20 June 2017 2 Slower global growth in 2018 & 2019 Using our database of 69 leading industrial countries (which account for 94% of global IP), we calculate industrial output on a rolling 3m basis was around 3.1% higher YoY in April, far faster than the sub-1% growth seen at the turn of 2015/2016. Fig 1 Global industrial production: % change YoY & 3m moving average Fig 2 Manufacturing PMIs vs IP/manufacturing output growth, % change YoY Source: National data, Macquarie Research, June 2017 Source: National data, Macquarie Research, June 2017 Looking ahead, manufacturing PMI surveys give a short look into the future. At present the level of these suggest some room to move higher, but they also suggest we might have reached an inflection point – especially if one looks at the Markit PMIs only (we use those for countries other than China, where we use the NBS PMI, and the US, where it is the ISM). Fig 3 Caixin-Markit China PMI (index minus 50) Note: Divergences between the Caixin-Markit PMI and the CFLP-MS (Chinese Federation for Logistics & Purchasing, National Bureau of Stat