Please refer to page 19 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. GLOBAL Contents Global Economic Outlook Bright, But Growth Will Soon Peak.... 2 Key Risks 2 Chinese Reform 5 Low Yields and Good Growth to Support Equities 5 Has the dollar bull market come to an end? 6 Commodities to be mixed 7 United States 8 China 10 Eurozone 11 UK 12 Japan 13 Canada 14 Australia 15 South Africa 17 India 18 Analyst(s) Macquarie Securities (Australia) Limited Ric Deverell +61 2 8232 4307 ric.deverell@macquarie.com Shane Lee +612 8232 8707 shane.lee@macquarie.com 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 Neil Shankar +1 416 607 5055 neil.shankar@macquarie.com Macquarie Capital Limited Larry Hu, PhD +852 3922 3778 larry.hu@macquarie.com Macquarie Capital Securities India (Pvt) Ltd Upasana Chachra +91 22 6720 4355 upasana.chachra@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 25 September 2017 Synchronised growth, but a momentum peak is near... Low long rates and a weak Dollar... After falling to nearly zero in early 2016, global industrial production growth has recovered steadily over the past 18 months, with recent momentum (3m/3m saar) the strongest seen since 2011 at 5%, well above the 3% long run average. Notably, the most recent PMI surveys suggest that, if anything, growth momentum picked up further in August, with good growth in all the major regions. Global Industrial Production (3m/3m, %) Source: National Sources, Macquarie Research, September 2017 While the post-Crisis experience suggests caution, and a momentum peak is likely to occur soon (hard commodity prices have fallen over recent weeks), we feel that the outlook has brightened considerably over recent months, with growth likely to remain above average over the remainder of 2017 and into 2018. In terms of risks, many worry about an impending “bond bust”, as good growth combines with tapering by the ECB and moves to reduce the balance sheet by the Fed. However while higher yields are likely over time (supply and demand does still work), we expect long yields to remain relatively low for some time yet, as structural constraints combine with the Bank of Japan to keep the curve anchored. To us China remains the bigger risk, but major policy action is unlikely until next year once the political transition is complete. Low rates and good growth could see equities continue to climb, while commodities will remain mixed, with metals coming under pressure and oil range bound. We are also focused on currency markets, with the recent fall in the USD a key watch point. While the dollar should stabilise around current levels for a time, we think the risk is that the recent dip signals the end of the dollar bull market. (10%)(8%)(6%)(4%)(2%)0%2%4%6%8%10%2005200620072008200920102011201220132014201520162017Other developingDevelopedChinaWorld total Macquarie Research Synchronised growth, but a momentum peak is near... 25 September 2017 2 Global economic outlook bright, but growth will soon peak.... After falling to nearly zero in early 2016, global industrial production growth has recovered steadily over the past 18 months, with recent momentum (3m/3m saar) the strongest seen since 2011 at nearly 5%, well above the long run average of 3%. Similarly global GDP growth was strong in Q2, coming in at an above-average 3.7% saar, the best quarter since 2011.  Notably, the most recent PMI surveys suggest that if anything, growth momentum picked up further in August, with good growth in all the major regions. Fig 1 Global GDP is growing at an above-average pace Fig 2 While the Global manufacturing PMI suggests growth remained strong into Q3 Source: Country sources, Macquarie Research, September 2017 Source: Country sources, Macquarie Research, September 2017 While growth remains robust, we expect momentum to peak in the next month or two, as inventories build, and the slowdown in Chinese housing and fixed asset investment weighs. However, notwithstanding a near-term growth peak, we feel that the outlook has brightened considerably over the past six months, with growth likely to remain above average over the remainder of 2017 and into 2018.  While this decade has been marked by substantial dips following growth peaks, we think that both the 2011 and 2014 episodes were driven by idiosyncratic shocks (Europe and China) that are unlikely to be repeated in 2018.  Rather, we expect growth to oscillate around a relatively strong mean, as seen in the period 2004 to 2007. Key Risk