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Global Investment Outlook • Eric Lascelles • Daniel E. Chornous, CFA • John Richards
the winter and spring, denting global
growth. Fortunately, commodity prices
are now easing. Fourth, European woes
have re-intensified as angry voters
bring rather less austerity-friendly
politicians to the fore, just as forward
progress becomes all the more urgent.
European growth has been snuffed out.
Fifth, the Chinese economy continues
to decelerate due to the country’s
moderating real estate market. Sixth,
the global economy is simply incapable
of outsized economic growth during
the post-financial-crisis period. Prior
brief spurts have repeatedly proven
unsustainable.
Steady aim
Even as the economic outlook has
deteriorated, we have held mostly firm
with our own forecasts (Exhibit 4). This
is not due to neglect or obstinacy, but
rather because our forecasts already
capture the deteriorating state of
affairs. We continue to have a more
sluggish outlook than the consensus,
and so are able to hold fast to our prior
convictions even as others scramble to
downgrade their views.
Outside of Europe, we still do not
expect recession. Most metrics show a
U.S. recession to be a low-probability
outcome, and even as the economy
slows, there is nothing pointing to
outright decline. To the extent that the
threat of a U.S. recession exists, it is
based on massive event risks.
The U.S., Canada and Japan are all on
track for growth near 2% in 2012. This
is slightly disappointing for the U.S.
and Canada, and rather positive for an
aging Japan.
The U.K. should eke out a sliver of
growth in 2012 but is technically in
EXHIBIT 3.
U.S. Heating Degree Days,
Deviation from Normal (4m moving avg)
Y/Y GDP Change (%)
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
80
40
0
-40
-80
-120
-160
EXHIBIT 4.
Unprecedented Warm Winter in U.S.
Cooler than usual
Warmer than usual
Warmest
winter in over
a decade
1998 2000 2002 2004 2006 2008 2010 2012
Source: Haver Analytics, RBC GAM
RBC GAM Forecast for Developed Market GDP
2.00% 2.00% 2.00% 2.00%
2012
2013
1.75%
1.50%
0.25%
1.50%
-0.75%
0.50%
U.S. Canada Japan U.K. Eurozone
Source: RBC GAM
SAMPLE
recession. The Eurozone is stuck in a
deepening recessionary rut. Among the
few tweaks to our forecasts are quarterpercentage-point
snips to both the U.K.
and Eurozone economic outlooks for
2012, taking already below-consensus
views even lower.
Our 2013 economic outlook is less
grim on an absolute basis, yet is
even further below consensus. It
is hard to fathom why so many
forecasters provide such a sunny
weather forecast given long-enduring
overcast conditions. Fiscal drags will
apply themselves with even greater
conviction next year in the U.S.,
Europe’s recession does not look to be
easily solved, and slow growth remains
the mantra in a post-crisis world of
deleveraging banks, businesses,
households and governments.
Growing drags, mounting risks
A rogue’s gallery of drags and risks
continues to loom, and the danger
has increased in recent months. As we
discuss in this report, Eurozone risks
have again soared due to growing fears
of a Greek exit, Spain’s mounting woes
12 I The global investment outlook RBC INVESTMENT Strategy coMMITTEE Summer 2012