2010 Global Economic Outlook In a Nutshell (by Nomura Global Economics)

Global

The developed-world recovery looks set to be weak given de-leveraging forces and other legacies of the crisis.
With good fundamentals and a lack of aftermath issues, the emerging world, particularly Asia, is set to grow strongly.
Developed-world inflation should stay low amid ample spare capacity, but exchange-rate-targeting central banks risk bubbles.
The main downside risks include a re-eruption of financial distress, a commodity price bubble and premature fiscal tightening.
A possible upside surprise: animal spirits stir and, with monetary conditions super-loose, help release pent-up demand.
We forecast an average Brent oil price of $72 in 2010 and $75 in 2011, after $62 in 2009.
We expect further dollar weakness, especially vs EM, but the yen should gradually trade weaker on MOF intervention.

United States

The “Great Recession” has ended, but the after-effects of the financial crisis are likely to weigh on the recovery.
Job market conditions are improving, but business uncertainty should limit job growth and keep the unemployment rate high.
Typical of the first phase of recovery, ample capacity is likely to put downward pressure on inflation.
We expect the Fed to focus on an orderly exit from credit easing, but not to hike rates until early 2011.
Proposals for a jobs-focused fiscal policy must overcome resistance from those worried about adding more to a record deficit.

Europe

We expect sub-par growth given household de-leveraging in the UK and feeble domestic momentum in the euro area.
The fiscal policy challenge: deliver short-term stimulus within a credible framework of medium-term consolidation.
Headline inflation is set to rise in the UK and euro area, but underlying inflation is likely to stay very weak.
We expect the ECB to start gradually removing exceptional liquidity measures but not to start hiking rates until October 2010.
The BoE MPC faces uncertainties on both sides and we do not expect rate hikes until November 2010.

Japan

We expect the Japanese economy to slow again through H1 2010 but for growth to pick up again in the second half.
Faster-than-expected excess supply corrections and expanding exports, particularly to Asia, should drive a recovery in H2.
Given a wider negative output gap, we expect CPI deflation to persist for the foreseeable future.
The BOJ is likely to adopt additional easing measures, such as increasing long-term JGB purchases, in H1 2010.

Asia

Things look ripe for a paradigm shift – domestic demand is replacing exports as the main growth driver, led by China.
China: The investment and consumption booms are set to continue and to deliver double-digit growth.
Korea: We see an inflationary economic recovery in 2010, driven by a prolonged macro stimulus and strong China demand.
India: With both growth and inflation headed towards 8%, we expect the RBI to lead Asia in tightening monetary policy.
Australia: Despite less expansionary policies, we see GDP growth quickening on stronger capex, exports and housing.
SE Asia: Bullish on Indonesia, Singapore and the Philippines; less so on Thailand and Malaysia; concerned about Vietnam.

EEMEA (Emerging Europe, Middle East and Africa) and Latin America

Key themes in 2010 are the removal of supranational support, fiscal sustainability and the effects of exit strategies on rates.
CEE will likely be the slowest region to recover. Vulnerabilities persist, especially with banks’ NPLs set to peak in Q2 2010.
Elections in CEE are a risk, with knock-on effects for fiscal policy sustainability. We see Poland entering ERM-II in Q4 2010.
South Africa: World Cup and restocking will mask a weak recovery in consumption; we see a change in the SARB mandate.
Russia should return to stable, if subdued, growth in 2010, supported by oil prices and pent-up domestic demand.
Turkey should show a strong rebound in 2010, allowing some policy normalisation. Inflation should remain in check.
Middle East: The Dubai story is a key test of investor confidence in the region; growth momentum should be maintained.
LatAm: Strong growth in Asia and expansive monetary and fiscal policy are leading to a cyclical recovery.

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