2017 Forecasts Following Brexit

A downward shift in the 2017 GDP outlook for the G-5 and Euro zone is apparent this month, most noticeably for the UK. The decision to exit the EU has ramped up global uncertainty and fuelled volatility across world financial markets. It has also reignited fears over the Euro area and may spread a political fallout as mainstream parties lose public support. The swift appointment of a new prime minister may prevent further political turmoil, but the unknown future of the UK‘s trade relationship with the EU seems likely to set back firms’ project plans and put jobs at risk. UK inflation may spike in 2017 amid sterling weakness. German forecasts have been weighed down by growing external risks, but robust consumption should drive growth. Opposition to labour market reforms poses a major obstacle to French GDP growth, according to the IMF. Meanwhile, moderate growth in the US has been led by strong consumption trends, boosting activity in services. Growth softened less than previously anticipated in Q1, although US dollar strength may hit manufacturing activity and external demand. CPI expectations for 2017 suggest a pick-up from the weak 2016 outlook in France and Germany, assisted by a steady increase in oil prices. In Japan, inflation expectations have fallen, though, after the 2017 consumption tax was delayed as a result of a persistently weak period of economic expansion.

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