All Outlook 2018 documents

Global Macro View – Will Goldilocks stay in 2018?

Sensational! That best describes how business confidence indices have developed in 2017 and in particular in recent months. While they have not been equally strong everywhere, they show that all the main regions of the world economy are growing nicely. More striking, the most recent of such indicators suggest that momentum, which was already strong, is increasing further. This is particularly true for the eurozone. As inflation has actually remained very subdued in 2017, this has been a year in which Goldilocks has come back to life. Can she stick around in 2018? In the first part of this commentary we discuss the main trends we envisage for 2018, focussing on the outlook for growth and inflation in the main economies. In the second part we summarise, qualitatively, our views on specific economies.

FX Outlook

Dutch Economy in Focus – Full power ahead in 2018

  • The Dutch economy is set to grow by 3.25% in 2017, the highest rate since 2007
  • Improving economic barometers point to further strong growth
  • GDP growth can again reach around 3% in 2018, driven by the expanding global economy and the spending impulse from the new cabinet
  • Economic growth is likely to decelerate in 2019
  • The number of jobs is rising strongly. This will push down unemployment, but at a slower pace than jobs growth as more people are entering the labour market
  • Inflation to rise slightly in 2018 on e.g. stronger wage increases and more rental increases. A rapid acceleration will follow in 2019 when the low VAT rate is raised
  • The EMU surplus will decrease slightly in 2018 due to extra public spending

Eurozone Outlook 2018 – Capital spending leads the way

  • We expect the eurozone economy to continue to exceed both its trend rate and consensus forecasts in 2018, with investment playing a bigger role…
  • …spurred by easy financial conditions, profit growth and sky-high confidence
  • Government finances have improved thanks to high levels of economic growth and low levels of interest rates, some countries remain vulnerable though …
  • … particularly Italy where the upcoming general elections are unlikely to deliver a stable new government
  • There is still significant slack in the eurozone labour market and wage growth and core inflation will remain subdued for a considerable time
  • The ECB looks set to continue asset purchases until early 2019, given a taper period, with interest rate rises not following until the second half of that year
  • We expect moderate rises in government bond yields, and steeper curves

Asia Watch – Still in the lead in 2018

  • China and pick-up global growth/trade have supported Asian growth in 2017
  • For 2018, we expect regional growth to remain solid at just above 6% …
  • … and India to regain status of fastest growing giant again
  • Inflationary pressures are building …
  • … so we expect a cautious turn of the monetary policy cycle
  • Risks: tighter financial conditions/high debt, China, protectionism, geopolitics

China Watch – Gradual slowdown in 2018, risks remain

  • After better than expected 2017, gradual slowdown to resume in 2018-19 …
  • … as Beijing continues with targeted tightening and (financial) deleveraging
  • Rising bond yields add to debt risks; no systemic crisis expected near-term
  • Structural transition ongoing, rise of high-tech and strategic new industries
  • Expected import slowdown should remain ‘manageable’ in volume terms
  • “Impossible Trinity” managed smartly, modest CNY depreciation expected
  • Risks remain: a slowing and tightening China will keep markets busy in 2018

Precious Metals Outlook 2018

Silver to follow gold again

Silver prices rallied by 3% in 2017 but underperformed gold. Silver prices to weaken in 2018 because of a modest rise in US dollar and US Treasury yields, but silver prices to rally again in 2019 on US dollar weakness and slightly lower US yields.

Gold: Modest downside in 2018

2017 was a strong year for gold prices, which rallied by 11% mainly on US dollar weakness. 2018 will probably be less rosy as we expect US dollar to recover and 10y US Treasury yields to rise. Gold prices will probably move towards USD 1,250 per ounce but a short wave of position liquidation could push it to USD 1,200. This would be an opportunity to position for a gold price rally in 2019.

Platinum to outperform palladium

Palladium prices strongly outperformed platinum prices in 2017, because all the stars were aligned for palladium while negative sentiment on diesel cars weighed on platinum prices. Platinum will probably outperform palladium in 2018, because the negative scenario is reflected in platinum prices and sentiment towards palladium cools somewhat.

Brazil Watch – Uncertainty to remain in 2018

  • 2017 growth forecast raised to 1% based on revised GDP data.
  • We maintain our growth forecast of 2.5% for 2018 and expect 3% in 2019.
  • Election uncertainty remains important downward risk.
  • Public finances pose a longer-term threat.

Turkey Watch – On the eve of change

  • We expect 6.5% GDP growth yoy in 2017, despite political turbulence
  • Turkey is at a turning point: a higher Fed rate, higher energy prices and weak domestic economic structures will determine its direction in 2018
  • For 2018, we foresee slowing growth (4.5% yoy) and further lira depreciation
  • External financing problems to worsen in 2018