The End of the Cycle? - Trade Wars, Fed Hikes & Financial Stress 2019 Global Outlook From Bloomberg Economics - Bloomberg LP
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Bloomberg Terminal
Economics
The End of the Cycle?
Trade Wars, Fed Hikes & Financial Stress
2019 Global Outlook
From Bloomberg Economics
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Bloomberg Economics
2018 started with hopes of strong and coordinated global growth. 2019 will not. Expansion in
major advanced economies is set to slow, with a marked divergence between the U.S. and
the rest. Some emerging markets face recession — fallout from their 2018 currency crisis. Key
uncertainties are the trajectory for Fed tightening and its impact on emerging markets, the
intensity and economic fallout from U.S.-China trade wars, and the economics — and politics
— of tighter financial conditions in the euro zone. The year ahead probably won’t bring the
end of the cycle, but risks are growing and new sources of fuel are needed.
Published Dec. 5, 2018
All research appeared first on the Bloomberg terminal
Contents
5 Global Economy Is in Search of a Fresh Source of Fuel
7 Powell’s Nirvana — What Ends the Unending Cycle
9 Oil, Rates, Dollar — Shock Impact Ready Reckoner
11 China, Cars and Congress—Three Risks to 2019 Trade Outlook
14 Emerging Markets, Emerging Risks
17 Fed to Call Bluff on 1970s-Style Stagflation
19 Canada’s Fading Economic Slack to Spur Three Hikes
22 Trade War to Drive China’s 2019 Growth Rate
26 Tax Hike, Trade War Spell Slower Growth for Japan
29 Lower Oil Is a Game Changer for India’s Economy, RBI
32 Domestic, External Challenges to Converge in South Korea
34 Export Headwinds Won’t Deter Asean Central Banks
38 Australia, New Zealand Brace for Trade War Fallout
41 Euro Area Sees Light at the End of the QE Tunnel
43 Risks Mounting in Europe’s Strongest Economy
45 Italy’s Budget Could Turn Into Slow Motion Wreck
47 France’s Jobless Face Tough Walk Crossing the Street
48 New Joiners Will Help Keep Spain’s Party Going
51 Brexit Deal Will Deliver 2019 Cyclical Sugar Rush
54 Sanctions to Stoke Russia Recession Risk in 2019
57 Public Spending Is Only Game in Town for Saudi Arabia
58 Turkey’s High Rates, Lira Slide Spell Recession
61 Bolsonaro Faces Public Debt Challenge in 2019
62 Economic Policy Uncertainty Damps Mexico’s Outlook
63 Argentina’s Adjustments, Elections to Fuel Uncertainty
64 Low Potential, External Risks to Cap Recovery in Andean Countries
68 Elections to Determine Africa’s Economic Fortunes
70 Trade War Raises Hopes of African Industrial Renaissance
72 Governments Behaving Badly — Political Risks to Growth
74 Contacts
Questions or feedback? Contact editor Tim Farrand at tfarrand@bloomberg.net
3
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Bloomberg Economics
In Search of a Fresh
Source of Fuel
By Stephanie Flanders
“Assumption is the mother of all largest risk factor for China’s The key short-term question
screw-ups” — or so my first boss economy in 1H — though the G20 mark relates to the future of
used to tell me. Yet forecasters talks have dialed down tensions. President Trump's trade wars and
got the big picture for global particularly their impact on
growth and inflation broadly Political risks didn't go away in China. This probably has the
right in 2018, despite getting the euro zone either, despite the most potential to push global
plenty of key assumptions wrong. relative lack of elections. Instead sentiment off course in 1H19,
The betting for 2019 is for they have intensified in Italy, with both through the direct impact
another year of moderate growth a provocative and potentially on trade flows and the indirect
and stable inflation, with unstable populist coalition effect on global confidence and
recession risks becoming more picking a fiscal fight with investment. Chinese policy is
evident only as we approach European authorities and so now swinging firmly from
2020. But the details will matter reminding investors of the euro tightening to stimulus as the
— because what's happening zone's Achilles’ heel. leadership readies for the impact
beneath the surface will determine of tariffs. So far the aim seems to
whether we have years to come Our Year Ahead publication be merely to cushion the blow.
in this already long recovery or contains Bloomberg Economics' But another round of tariffs,
are entering the final straight. detailed country forecasts for affecting all or most of Chinese
2019. Chief Economist Tom Orlik exports to the U.S., would raise
One mistaken assumption from has also looked at how past the stakes and the temptation to
2018 was that growth would recoveries have ended and the revert to old habits.
continue to be more lessons for today. Here let me
synchronized across regions. In highlight one key issue shaping As our chief Asia economist,
fact, we saw the U.S. economy the short-term outlook and two Chang Shu, explains, these were
break away, once again, this time others which should have greater already going to be difficult
thanks to tax cuts and higher significance over time. transformative years for China's
federal spending. Consumer
inflation did rise broadly as
expected in the developed Earnings Growth Is Gathering Pace
economies, from 2.0% to 2.3%,
but a key driver in many countries
was higher oil prices. Core
inflation frequently undershot.
The consensus also
underestimated the political risks
to the recovery in 2018. President
Donald Trump has not, in fact,
been all bark and no bite on
trade, at least with regard to
China. The prospect of another
round of U.S. tariffs on around
$250 billion of Chinese exports
to the U.S. is probably the single Source: Bloomberg Economics
5
Bloomberg Economics
The Fed has not managed a soft landing in
its history. But there's a first time for
everything
economy. The risk is that Trump tensions with the White House get gloomy about the trifecta of
will make them downright are only going to get worse, negatives hitting global
impossible, sending China's long given the very large gap corporates, with confidence
-term strategy into reverse. That between the Fed's view of the being hit by trade wars at a time
said, tariff barriers alone are not U.S. economy's sustainable when rising wage costs may start
going to halt the global growth rate with unemployment to eat into profits and the cost of
recovery. What matters more for at a 49-year low and the much finance is rising. But profit
the medium-term length of the rosier picture adopted by Trump. margins are at cyclical highs in
cycle will be the response to — many economies, demand is as
and management of — tighter In the euro zone the political good as it has been for several
global financial conditions and pressures are in the other years and balance sheets still
what happens to wages, direction, and possibly more look strong. Technology is also
productivity and investment. dangerous. Large parts of throwing up historical opportunities
Europe’s financial and political to transform business operations
Though the Fed has been raising elite are eager to normalize — especially in services.
rates since 2015, the combined policy, but so far inflation is not
balance sheet of the U.S., euro giving the ECB any reason to Capital spending has tended to
zone and Japanese central banks speed up the timetable. If lag far behind profit growth
was still expanding on a monthly anything, the loss of economic recently and 2018 was no
basis for most of 2018. Once the momentum in the euro area in exception. Productivity growth is
ECB stops buying bonds that will the latter part of 2018 has still feeble too, at around 1% a
stop and G3 central bank pointed the other way. year in the developed economies.
liquidity will start to shrink. But we have seen a virtuous
The trickiest decisions could circle of rising wages, investment
The Fed has not managed a soft come in 2H19, as the ECB and productivity prolong cycles
landing in its history. But there's considers how and when to in the past — notably in the late
a first time for everything. Three begin the long path toward more 1990s. It is not the most likely
years since the first increase in normal policy rates. Right at the outcome now. In fact the latest
the federal funds rate, things center of the conundrum will be surveys suggest both business
could definitely be going a lot Italy — whose public finances and sentiment and investment are
worse. If you want to know financial sector are uniquely weaker. But it’s surely not
whether it's continuing to go well vulnerable to higher long-term impossible at a time when capacity
in 2019, keep a close eye on the rates and reduced central bank constraints may also start to bite.
rate of corporate credit defaults liquidity. Those looking for
in the U.S. Around half of the $6 experienced hands at the tiller This is the stage of the cycle
trillion of U.S. investment grade will be concerned to note that when politics can often have the
corporate debt today is just one the ECB will have a new leader upper hand over economics. The
notch away from junk status. by the end of 2019 and Germany end of year cacophony over
quite possibly a new chancellor. Brexit will leave U.K. residents
Almost as important will be the feeling that more than most. But
politics of tighter monetary Finally, keep your eye on what in beneath the noise, this is a
policy. Presidential tweetstorms the long term will matter most of global economy in its 10th year
don’t pose a real threat to the all: the individual decisions of of recovery looking for a fresh
Fed's independence, but global businesses. It's easy to source of fuel.
6
Bloomberg Economics
Powell’s Nirvana — What Ends the
Unending Cycle?
By Tom Orlik
“There’s really no reason to think The Phillips curve, though, might Fed Chair Paul Volcker’s tight
that this cycle can’t continue for prove steeper in some places control of money supply raised
quite some time, effectively than others. Unemployment is rates to 19.1%. To get from
indefinitely,” said Fed Chair already at its lowest level since Powell’s cautious and gradual
Jerome Powell. In his view, a the 1960s. October normalization to a cycle-ending
change in the way the economy wages notched a 3.1% annual blow to growth, there would
works has made it easier to gain. With the economy running have to be a confluence of
maintain low unemployment above potential, 2019 will bring negative factors triggering a
without inflation. further advances. significant sell-off in the markets.
Fair enough. At the same time, There’s already a divergence One could be fiscal policy.
the idea of an unending cycle is between the Fed’s forecast and Tailwinds from Trump’s tax cut
more familiar in Buddhism (or the market’s expectation. The dot are set to fade from 0.4 ppt of
Australia) than the U.S. economy. plot points to rates ending the GDP in 2018 to 0.2 ppt in 2019
With the current expansion year with an upper threshold of and then nothing in 2020, according
pushing toward its 114th month — 3.25%. Fed fund futures point to to U.S. economist Tim Mahedy.
close to the 120-month record of 2.75%. If the Fed has to move
the 1990s — it’s worth asking what down into line with the market, Another could be the trade war.
could bring it to an end. that won’t be a problem. If the An agreement between Trump
market has to move up into line and his Chinese counterpart Xi
Stretching back to the 1950s, with the Fed, it could be. Jinping at the G-20 gathering in
high inflation and Fed tightening Argentina has dialed down the
have played a starring role in Of course, in the grand scheme tensions. The planned increase in
ending expansions. Powell’s of things, a move from 2.5% at U.S. tariffs from 10% to 25% has
thesis is that changing inflation end-2018 to 3.25% at the end of been suspended, pending 90-
dynamics mean this time is 2019, isn’t that exciting. In 1981, days of talks. Even so, the 10%
different. Independent, inflation-
targeting central banks have
tamed expectations of price The End of Uncertainty?
increases. As a result, low
unemployment can be sustained
without triggering an upward
spiral of wages and prices.
With inflation under control, the
Fed has no need to push
borrowing costs to punitive
levels, and the cycle can continue
— Powell hopes — indefinitely. So
far, that thesis seems to be
playing out rather well. The core
personal consumption
expenditure price index has
been hovering at the 2% mark. Source: Bloomberg
7
Bloomberg Economics
tariff already in place remains slowing growth, a hard landing in 2019 limited. Low oil prices are bad
substantial, frontloading of is unlikely. news for Saudi Arabia, Russia,
exports in 2018 will likely mean a and other producers. For oil
drop off in the year ahead, and That leaves a laundry list of importers — a group that includes
there's continued risk tariff rates exogenous shocks. Challenges in most of the major economies —
could rise - if the 90-day talks the old world look greater than it’s a positive.
don't produce sufficient those in the new. Deal or no
concessions from the Chinese deal, Brexit is set to be a drag — A war with North Korea would certainly
side. though one that markets have not be pretty, but seems unlikely now
had ample time to anticipate. that Trump and his counterpart Kim
Past cycles have been ended by The combination of a free- Jong Un “fell in love.”
financial blow ups. This one spending budget and the end of
could be too. Bloomberg’s European Central Bank bond At this point, it’s customary to
financial conditions index has purchases is already testing the note — sagely, but not particularly
tumbled from the start of market’s appetite for Italian debt. helpfully — that past cycles have
October. The S&P 500 gave up been ended by unexpected
all its gains for the year. Space Emerging markets might face events. The same could happen
for a further deterioration another turbulent year. again. Summing up what can be
remains. U.S. corporate debt at Our metrics show Turkey, said within the sphere of the
close to 46% of GDP — near a Argentina and South Africa have expected, Powell’s nirvana of low
postwar high — is a fault line, the biggest vulnerabilities. Even unemployment, moderate
especially as much of the so, the lesson of recent history is inflation, and sustained growth,
borrowing has been used for that even major crisis in should persist for at least another
financial engineering rather than emerging markets leave year. Growth in the U.S., and the
investment in productive assets. advanced economies unscathed. rest of the world, is expected to
Low borrowing costs fueled the With the emerging market share slow, not stop.
corporate debt boom; higher of global output, and market
costs could unravel it. capitalization, down since the That said, forward-looking
2013 taper tantrum, the chances financial markets mean that once
Assume an unhappy confluence of blowback are low. an end is anticipated, it can
of events triggers a significant arrive sooner than expected. A
sell-off in U.S. markets. What kind In the 1970s, oil price shocks number of things could go
of drag does that mean for the twice dealt a blow to growth. For wrong. They would likely have to
real economy? The global 2019, with prices slumping to go wrong at the same time to
financial crisis is the most recent $60 a barrel, the chance of a bring the cycle to a premature
example, but likely not the best repeat performance seems end.
benchmark. Recessions in 1990
(following the savings and loan
crisis) and 2001 (as the dot-com Who Slips If Oil Slips
bubble burst) were both mild.
Market crashes in 1987 and 1998
left no lasting impact on GDP.
How about external risks? Since 2015,
when the Shanghai equity rout and
yuan sell-off triggered a global panic,
China has been high on the worry list.
Heading into 2019, China faces a drag
from U.S. tariffs, and a continued
struggle against its own debt demons.
Our view: China has taken significant
steps to manage down financial risk,
and retains adequate policy firepower
to bolster demand. Despite signs of Source: Bloomberg Economics
8
Bloomberg Economics
Oil, Rates, Dollar — Shock Impact
Ready Reckoner
By Jamie Murray and Tom Orlik
The final months of 2018 have relative to the baseline. The U.S. 1.3% relative to the baseline — a
underscored the potential for comes out slightly ahead, though reflection of strains caused by
market shocks to throw the in the wake of the shale capital outflows. Lost
economy out of whack. To assess revolution the benefit of low competitiveness and weaker
risks through 2020, we used prices is reduced. external demand shaves 0.5% off
NiGEM, a model of the global U.S. output. Korea and Japan —
economy, to see what happens Dollar trade surplus countries — are
to growth if oil prices slump, U.S. So far, 2018 has proved a strong more resilient.
borrowing costs surge, or a risk- dollar year. With the Fed leading
off moment prompts dollar the way on normalizing monetary Rates
strength. policy, rates differentials favored A decade on from the global
dollar strength. Turmoil in financial crisis, banks are now
Bare bones quantitative work emerging markets, prompting better capitalized and more
should be the start, not the end safe haven demand, pulled in the resilient. The chances of another
of the analysis. Still, the findings same direction. As of late credit meltdown look small but
provide a rough gauge of the November, the broad dollar that’s not prevented the IMF
magnitude of the impacts and index is up about 9% from its from sounding the alarm on
who the winners and losers February low. With emerging pockets of risk building in the
might be. markets still on the ropes, we financial sector — particularly in
modeled what a further 10% gain the leveraged loan market. To
Oil driven by safe haven flows would gauge how U.S. shocks can spill
Oil has been on a wild ride. The mean for growth. over to the rest of the world
price of Brent crude touched a we’ve modeled the impact of a
high above $86 a barrel in early Turkey and Brazil do worst, with 100-basis point increase in U.S.
October, only to slump to a little 2020 GDP lower by 1.7% and borrowing costs.
over $60 in late November.
Much of that drop reflects
weaker global demand. But what
if a supply glut pushes oil costs Oil Drops to $50 a Barrel
even lower? We looked at what
would happen to G-20
economies if oil sinks to $50 a
barrel and stays there (that’s
relative to a baseline of $65).
The results the model spits out
show oil-producer Russia is the
biggest loser. (Saudi Arabia
would also suffer, but it’s not
specified in the NiGEM model).
At the other end of the spectrum,
India and Japan — significant oil
importers — see gains of 0.4%
and 0.5% of GDP by 2020 Source: Bloomberg Economics, NiGEM
9
Bloomberg Economics
Countries with weaker ties to the U.S.
economy experience a smaller shock
With the shock originating in the by a little over 1% in 2020. Close exports. Countries with weaker ties
U.S., it’s no surprise that’s where the neighbors Canada and Mexico also to the U.S. economy experience a
blow to growth is greatest. The slow noticeably. China feels the smaller shock.
model suggests GDP might be lower impact of reduced demand for its
Notes
In our oil analysis we take
Dollar Climbs 10% on Safe Haven Inflows account of the shale revolution
on the U.S. economy by using net
oil imports data to calibrate the
impact of lower crude prices.
We did not make any adjustments
for the changes to Canada’s oil
exports, so we have excluded the
results from the chart. There is
also good reason to think that the
relationship between oil prices
and Russia’s economy has
softened since the model was
estimated. The direction is likely
to be correct but the magnitude
Source: Bloomberg Economics, NiGEM of the impact should be thought
of as an upper bound.
U.S. Credit Risk Spikes to 100bps The dollar analysis is conducted
by increasing the risk premium
on all other currencies in the
global model to achieve a 10%
appreciation in the effective
dollar index.
The credit risk analysis is based
on the assumption that short-
term borrowing costs are raised
by 100 basis points for a year,
reflecting dislocations in the
financial sector. Argentina is
excluded from all our analysis
because it is not specified in
NiGEM.
Source: Bloomberg Economics, NiGEM
10Bloomberg Economics
China, Cars and Congress—Three
Risks to 2019 Trade Outlook
By Shawn Donnan
If 2018 was the year that Donald on trade. Trump and his hawks “If China were to say, well, we’re
Trump gave the world a new have repeatedly set a high bar going to stop doing all that stuff,
taste of an ancient phenomenon for Xi by insisting they want to it would be left with an economy
— trade wars — then 2019 is see “structural” changes in the that would effectively lose its
shaping up to be the one in Chinese economy to rebalance edge,” Peter Navarro, the White
which the combat risks being the trade relationship. But it’s not House’s most strident China
fiercest. clear that Xi will ever be willing hawk told a Washington think-
or able to make those sorts of tank, in November.
President Trump is as concessions.
unpredictable a leader as a Still, Trump has been facing
major economy has seen in Washington says it wants to see pressure from financial markets
generations. For that reason an end to the vast web of and farmers to strike a deal and
alone there are myriad scenarios subsidies and cheap, state- has already demonstrated an
— from de-escalation to all-out directed loans that has fueled ability to spin modest
economic war between the China’s economic rise and the achievements on trade as
world’s two largest economies, international march of its state- epochal victories. There’s reason
the U.S. and China — within the backed champions. It wants to to believe he could do the same
realm of the possible. see wholesale reform to China’s with China. But that also carries
intellectual property regime and political risk for him going into
Yet there are also three clear an end to state-directed cyber- 2020 with Democrats eager to
battlegrounds on which Trump’s theft. It also knows it is asking for poke holes in his populist trade
trade wars will be fought in 2019. the moon. appeal in key swing states in the
And if things go wrong on any of Rust Belt.
the three the results could roil
the global economy.
Balanced? China-U.S. Trade
Uneasy Truce
While Trump and China’s Xi
Jinping agreed during a
December steak dinner in
Buenos Aires to kick off 2019
with an uneasy truce and a pause
in their tit-for-tat tariff war it may
not take long for their conflict to
resume.
The big question looming over
the world’s two largest
economies going into 2019 is
how they can find a solution to
what remain major differences Source: Bloomberg
11Bloomberg Economics
Whether an imported Subaru or even a
Porsche is a threat to U.S. national security is
clearly debatable
For that political reason alone, tariffs in 2018. And he has since affect both U.S. and foreign
the most likely scenario when it made repeated threats to levy a carmakers that now manufacture
comes to China calls for an 25 % import tax on cars from in the U.S.
enduring frozen conflict rather Europe and Japan.
than a grand armistice. That Congress
would mean the U.S. tariffs Whether an imported Subaru or Trump has claimed his
imposed in 2018 on $250 billion even a Porsche is a threat to U.S. renegotiation of Nafta, now
in Chinese imports — and the vast national security is clearly rebranded the “U.S. Mexico
majority of the Chinese debatable. But the investigation Canada Agreement” (USMCA) as
retaliation to those — remaining fits with what the administration a major victory for his belligerent
in place. It would also mean the insists is its broad definition of approach to tariffs and trade.
rolling out of new export controls national security to include
strictly limiting the sale of key “economic security”. A strong Experts continue to debate just
emerging technologies to China manufacturing base, it argues, is how much of a meaningful
and continuing scrutiny of as important to national security change the new deal marks and
inbound Chinese investment into as a flotilla of aircraft carriers. what its economic impact will be.
the U.S. But no one doubts that Trump is
Canada and Mexico have facing a fight in 2019 to get the
That result may be better than a secured exemptions from any pact ratified by Congress.
hot war. But it wouldn’t remove new tariffs as part of the Particularly with hostile
the possibility of the world’s two renegotiated North American Democrats controlling the lower
leading economies slipping into Free Trade Agreement. The EU House of Representatives and
a new Cold War as many experts and Japan, meanwhile, have thus wielding the power to block
ended 2018 fearing. drawn promises of temporary ratification.
exemptions from the auto tariffs
Autos Conflict while they negotiate trade deals Trump has responded by vowing
If there’s one Trump trade with the U.S. to pull out of the existing Nafta
conflict in 2019 that risks altogether if Democrats don’t
overshadowing the spat with The negotiations with the EU and ratify the USMCA, a move that
China it’s the one over autos. Japan are fragile, however. And would again leave immense
The outcome of this conflict Trump is not a patient man. uncertainty hanging over the
may also serve as a telling Before the end of 2019, North American economy. And
reminder of how Trump has set therefore, there is a real risk that reinforce the fears that in his
about rewriting America’s at least a substantial portion of trade wars Trump’s most
longstanding economic and the more than $140 billion in damaging trait may be his
strategic relationships and the finished cars and parts that the unpredictability.
shadow that casts over the global U.S. imports from Europe, South
economy. Korea and Japan could be hit
with tariffs.
Trump’s ordering up of a national
security investigation into U.S. Such a move would be disruptive
imports of cars and parts in itself. But there’s a risk, too, of
followed the model he used to a broader hit to supply chains if
impose steel and aluminum the tariff hits parts, which could
12Bloomberg Economics
Emerging
Markets
13Emerging Markets, Emerging Risks Rising rates, trade tensions and domestic policy missteps roiled emerging markets in 2018. The year ahead will inherit those stresses — and bring some of its own. Who looks vulnerable? We rank countries on five metrics: the current account, short-term external debt, reserve coverage, government effectiveness and inflation. Red shows higher risk, green greater stability.
Bloomberg Economics North America 16
Bloomberg Economics
Fed to Call Bluff on
1970s—Style Stagflation
By Carl Riccadonna, Yelena Shulyatyeva and Tim Mahedy
U.S. economic fundamentals for length, although the cumulative underway. Bloomberg
2019 are solid but should not be GDP gain will remain markedly Economics anticipates three fed
taken for granted as the Fed smaller. In the 1990s cycle, real rate hikes in 2019 followed by an
strives to execute a soft landing GDP increased 43%, whereas the extended pause.
for an economy coming down current expansion has been only
from a sugar high of fiscal 23% so far. This slower pace of Importantly, consumer spending
stimulus. growth explains why policy is poised to play a less exclusive
makers should proceed role as a driver of growth while
While 2018 was a banner year for cautiously. other mid-cycle engines, such as
growth — likely the strongest of business investment and
the cycle — a major risk for Fed While sluggish growth was government spending, engage
officials is that they make the unwelcome coming out of the more appreciably. History shows
mistake of setting policy for the global financial crisis, when the it will be hard to knock the
year that was (a great one), not priority was to reduce labor economy materially off balance
the year ahead (good, but not slack, slower growth in the given the fundamentals of sturdy
great). Winding down rate interim has enabled the economy household spending and
increases at the same time the to avoid the types of imbalances diversified growth.
economy is overshooting both of which would have otherwise
the Fed’s dual mandates will required a more aggressive Fed The type of shock that could
require a steely resolve among response. Policy makers need potentially deal a debilitating
policy makers, as critics will no not calibrate interest rates for an blow to the economy would
doubt attempt to draw parallels economy growing near 3% — this almost certainly require
to the monetary policy mistakes would justify a fed funds rate in depressing consumer spending
of the 1970s, which resulted in the vicinity of 4%-5% — because a to such a severe degree that
stagnating growth and excessive moderation toward trend other economic drivers could not
inflation. (roughly 2%) is already offset the drag. Under this
Growth should remain above
trend in 2019, but the trajectory Cycle Nears Record Length, Not Record Strength
will slow amid fading tailwinds
from fiscal stimulus. GDP growth
is set to decelerate from 3.1% in
2018 to 2.4% in 2019 and 2.1% in
2020. Policy makers will need to
use a lighter touch on the brake
lever to avoid overtightening
rates and prematurely ending a
cycle that is poised to be the
longest in the post-WWII era.
If the expansion continues
through the second quarter of
2019, it will tie the 40-quarter
expansion of the 1990s for Source: BEA, NBER
17Bloomberg Economics
Bloomberg Economics rates the recession
risk for 2019 at just 15%
framework, it is hard to envision third quarter: 3.5%) will manifest Recent public comments suggest
some of the well-advertised risks in an inflation acceleration Fed officials are amenable to
for 2019 — a disorderly Brexit, through the end of 2019. We parking the fed funds rate near
trade tensions or slowing global project the core PCE deflator to neutral, which most FOMC
growth — weighing on the U.S. rise toward 2.25% on a trend participants estimate near 2.9%-
economy to a critical degree. We basis by the end of 2019, but this 3.0%, and then pausing to assess
rate the recession risk for 2019 at could entail eye-catching hot the health of the economy as it
just 15%. patches along the way. Inflation adapts to less accommodative
will ultimately moderate, in a policy. Historically, the Fed has
The policy challenge for the Fed lagged response to slowing had little success returning a
will be to set interest rates based growth, but it will accelerate in below-neutral unemployment
on expected growth, not in the year ahead. rate back to neutral without
response to reported growth. This overshooting and causing a
will require a shift in Fed officials’ Growth in 2019 will be sufficient recession.
approach to policy decisions which to continue nudging the
will de-emphasize "data unemployment rate further Leaving the inflation-adjusted fed
dependency" and instead lean below policy makers’ estimates funds rate near 1% and pausing —
more heavily on forecasts of of neutral. It will require a firm as the economy cools down from
activity. To be sure, officials will be commitment from Fed officials to its 2018 high — will give them a
less comfortable shifting toward curtail rate increases in the latter shot. Policy makers will need to
"forecast dependency," but this will half of the year, as growth, remain confident that the
be crucial to avoid excessive unemployment and inflation all appearance of an overheating
tightening as plenty of residual run hot. But in doing so, they can economy will not last.
economic data reflect a prior ensure a soft landing for the
period of well-above trend growth, economy into 2020.
which has since moderated. This is
particularly true in the case of
inflation. Inflation to Get Hotter Before It Gets Cooler
Core inflation settled near the
Fed’s objective in the latter half
of 2018, after undershooting for
most of the previous decade, but
it is poised to drift higher in
2019. Recall that inflation is a
lagging economic indicator. As
the accompanying figure
illustrates, inflation is highly
correlated with the pace of
economic growth when adjusted
for a six-quarter lag. As a result,
the blistering pace of growth in
mid-2018 (second quarter: 4.2%; Source: BEA, BLS
18Bloomberg Economics
Canada’s Fading Economic
Slack to Spur Three Hikes
By Tim Mahedy
Headwinds to the Canadian toward the previous cycle’s peak. The trade accord between
expansion will be relatively Supply constraints are likely to Canada, Mexico and the U.S.
modest in 2019. While the pace worsen in the near-term as removed the biggest headwind
of growth is likely to moderate as aggregate demand remains to Canada’s outlook. We expect
the Bank of Canada removes elevated. exports to rise amid foreign
policy accommodation further, demand for Canadian energy
activity will still advance at an Investment will gain steam in 2019 and capital exports. Imports
above-trend rate. as favorable economic conditions will also rise, but at a slower
and capacity constraints boost pace than exports. Low oil
As the economy enters the later capital spending. Business prices and cooling global
stages of the cycle, the confidence is rising — companies in demand pose risks to the
composition of growth is the fall BoC Business Outlook external outlook.
changing. Consumer spending Survey noted strong investment
has been the primary engine of intentions — yet tax changes in the Core inflation has hovered near
growth in the current expansion. U.S. could create competitive the BoC’s target for much of
However, household debt challenges for exporters. 2018; it will likely rise in 2019.
remains elevated, which means With a tight labor market and
that rising interest rates will Investment in the energy sector strong U.S. growth, the risks to
overpower the boost to is expected to be modest next the inflation outlook are on the
consumption from expected year due to a widening spread upside. Added fiscal stimulus in
wage growth. Rising rates, along between crude prices in Canada the U.S., particularly an
with changes to mortgage and the U.S., potentially sluggish infrastructure deal, would further
lending rules, will also continue oil prices and a setback in intensify inflationary pressures
to weigh on the housing market. construction of the Trans and push the BoC to quicken its
On the other hand, the economy Mountain pipeline. pace of rate hikes.
is bumping up against serious
capacity constraints. Business
investment should pick up to
meet above trend consumer demand, Canadian Economy Near Capacity
despite additional rate hikes.
The jobless rate hovered near
record lows throughout 2018. Solid
job gains are expected to further
reduce unemployment, which will
exacerbate labor shortages.
Finding qualified workers is a
principle concern for businesses in
most sectors, and labor shortages
should moderately boost wage
growth. However, supply shortages
are broader than just a dearth of
qualified workers as evidenced by
the capacity utilization rate’s climb Source: Bank of Canada, Statistics Canada
19Bloomberg Economics Forecast Tables U.S. Forecasts INDICATOR 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019 2020 GDP, SAAR QoQ% 2.2 4.2 3.5 2.6 2.1 2.7 2.4 2.4 3.1 2.4 2.1 Unemployment Rate, % 4.1 3.9 3.8 3.6 3.6 3.5 3.4 3.4 3.6 3.4 3.4 Headline CPI, YoY% 2.3 2.6 2.6 2.3 2.3 2.4 2.5 2.6 2.3 2.6 2.2 Core CPI, YoY% 1.9 2.2 2.2 2.2 2.2 2.3 2.4 2.5 2.2 2.5 2.2 Fed Funds Rate, % 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.25 2.50 3.25 3.25 Canada Forecasts INDICATOR 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019 GDP, SAAR QoQ% 1.7 1.4 2.9 2.4 2.7 2.3 2.2 2.1 2.1 2.3 2.2 Unemployment Rate, % 5.8 5.8 6.0 5.8 5.8 5.8 5.7 5.7 5.7 5.8 5.7 Headline CPI, YoY% 1.9 2.3 2.5 2.2 1.9 2.1 2.1 2.1 2.2 1.9 2.2 Core CPI, YoY% 1.9 2.0 2.0 2.1 2.0 2.0 2.1 2.1 2.2 2.0 2.2 BoC Overnight Rate, % 1.00 1.25 1.25 1.50 1.75 2.00 2.25 2.25 2.50 1.75 2.50 20
Bloomberg Economics
China
21Bloomberg Economics
Trade War to Drive 2019
Growth Rate
By Chang Shu
The year ahead will be tough for escalation of trade tensions 11.1%. The risk that the U.S. and
China’s economy. A slowdown in leading to a broadly balanced China fail to reach a longer-term
2019 looks assured. The extent growth pattern. Assuming the deal on trade within the three-
will hinge on how a trade war U.S. tariffs stay unchanged at the month window is considerable. We
with the U.S. evolves, how the current level for 2019, China’s attach a 40% probability to this
government calibrates its growth would slow to 6.3%, from scenario.
response to external and a projected 6.6% for 2018. The
domestic headwinds, and how pace of increase in exports is In a worst-case scenario, where
policies are transmitted. A three- forecast to slow to 7.0% from the U.S. slaps higher tariffs on a
month truce agreed by President 13.7% so far in 2018. Investment broader range of imports from
Trump and his counterpart Xi would rise 8.2%, up from 5.7% so China, the slowdown would be
Jinping to allow for further trade far in 2018. Inflation would edge sharper and the growth mix even
talks means the outlook is less up, but not enough to constrain worse. A bigger boost to
grim. Even so, the risks to China’s accommodative policy. We attach infrastructure investment to prop
growth still tilt to the downside. a 50% probability to this scenario. up the economy would fuel a
further buildup of debt.
The challenges to the economy A less optimistic scenario, which Assuming higher U.S. tariffs on
should be viewed from the assumes the tariff rate rises to 25% all Chinese goods are applied in
perspective of a multi-year on $250 billion of Chinese goods 2H, China’s growth could slump
adjustment, with a potential re- in March, is for a deceleration to to 5.9%. We attach a 10%
organization of global supply 6.2% in 2019 and for the growth probability to this scenario.
chains and shifts in China’s mix to be less balanced. The main
industrial structure. As the drag — a 3.9% decline in exports. In In 2018, the trade war was the
changes proceed, the authorities this scenario, policy would be dog that barked. In 2019, it will
are likely to try to smooth bumps stepped up to support domestic bite. Export growth accelerated
to growth from short- and demand, with investment rising to 13.7% in the first 10 months of
medium-term shocks, without
incurring a further rapid debt buildup.
GDP Forecast: Investment to Cushion Exports Slowdown
This background means China is
unlikely to attempt to engineer a
V-shaped rebound. That could
be a long-term positive,
particularly if short-term
measures to support demand are
consistent with reforms that enhance
resource allocation and productivity.
Growth Scenarios
A lack of clarity on the trade
outlook makes forecasting
growth unusually tricky.
The most likely scenario —
though by slim margin — is de- Source: Bloomberg Economics
22Bloomberg Economics
The Trump-Xi agreement to freeze tariffs at
current levels for three months dialed down
tensions
2018 — even as the U.S. and channels. The PBOC could slash assistance for private firms lead
China ramped up tariffs. the RRR by another 150 bps and to better credit conditions. A
Companies rushed forward even lower its benchmark potential corporate tax cut —
production and shipments to interest rate by 25 bps. Other which the government is
beat a threatened hike in U.S. measures may include: increases studying — would provide a
tariffs on $200 billion of Chinese in re-lending and re-discount major boost. We see growth in
goods on Jan. 1. loans; credit support for private overall investment accelerating
firms to obtain bond and equity to 8.2% in 2019 from an
The Trump-Xi agreement to financing; window guidance for bank estimated 5.7% so far in 2018.
freeze tariffs at current levels for lending; and adjustment in the macro-
three months dialed down prudential assessment framework. Private consumption has shown
tensions. If the talks lead to a signs of weakening lately,
more lasting truce in the trade Infrastructure investment growth reflecting slower income growth,
war, it would be a huge relief for began to show signs of poor sentiment and heavy
China’s external sector. Even so, stabilizing in October, as burdens from education and
slowing global growth coupled government efforts to facilitate medical care costs. Tariff
with likely payback from this infrastructure projects gained reductions on consumer goods
year’s front-loading of shipments traction. In 2019, we expect and personal tax cuts should
means conditions will be difficult continuing efforts at stabilizing offset some negatives in 2019.
for the external sector. Tax infrastructure growth—an area
refunds for exports and a weaker where the government has the We forecast real private
currency might provide some most policy levers. Private consumption will increase 6.7%
support, but China’s net exports investment may also see a and retail sales 9.6%, compared
are likely to narrow in 2019. pickup, as monetary with rises of 6.3% and 9.1%,
accommodation and targeted respectively, so far in 2018.
With the challenging external
environment, China will lean on
domestic demand for growth.
One problem, though, is that Protracted Trade Tensions to Bite
credit growth has continued to
slow, despite policy
accommodation in recent
months. The People’s Bank of
China has cut the reserve
requirement ratio by 250 bps so
far in 2018. But aggregate social
financing — the broadest credit
measure — has failed to turn
around. The private sector has
faced difficulty accessing funds,
even as bank liquidity increased.
We expect more steps in 2019
aimed at unclogging lending Source: Bloomberg Economics; *Assumed; Bubbles show cumulative growth impact
23Bloomberg Economics
China’s policy makers face the toughest
combination of external and domestic
challenges since the global financial crisis
Yuan’s ‘Bottom Line’ there is a policy shift underway growth without abandoning
The yuan’s decline — about 6% from an implicit line in the sand — deleveraging and reforms is a lot
against the dollar so far in 2018 — the much discussed 7-per-dollar harder to pull off than blasting
is likely to extend in 2019, but at level — to managing an orderly out another major stimulus. With
a slower rate. Reduced trade depreciation. We see the yuan China's leaders reluctant to give
tensions with the U.S. would take weakening to 7.18 per dollar by up hard-won progress necessary
pressure off the yuan. Still, the end-2019, with a breach of the 7- to sustain the economy in the
slowdown in China, and a level possible in 1Q. medium term, the stabilization in
narrowing U.S.-China interest growth could take longer.
rate differential will continue to Risks Tilt to Downside
weigh on the currency. China’s growth outlook is Transformative Years
clouded by considerable China’s policy makers face the
The foreign exchange market has uncertainties. Trade talks are toughest combination of external
been largely calm even as the never plain sailing, even less so and domestic challenges since
yuan approached 7 against the for these between two the global financial crisis. A
dollar — considered a key economies with such a wide gulf shake-up of global supply chains
threshold. The PBOC is seen in expectations. It is possible that that spurs a relocation of
applying a less countercyclical the U.S. tariff rate rises to 25% production outside China on a
stance than anticipated when it after all following the 90-day large scale would hurt growth.
re-introduced the countercyclical negotiation period. What’s more,
factor into the fixing mechanism escalation in the trade war, while Deleveraging has revealed
in August — a move that signaled unlikely, cannot be completely significant vulnerabilities in the
a more hands-on approach to ruled out. In that case, there financial and corporate sectors.
managing the currency. The daily would be a more abrupt reversal Even so, more must be done to
fixings have mostly been close to in a shift away from investment- de-risk the economy. Dynamic,
market expectations since early led growth over the last couple emerging industries also need to
October, with two-way of years – leading to a worse mix be nurtured before they will be
movements. What’s more, market of drivers for the economy. big enough to help drive growth.
rates have traded close to the fixing.
Domestic risks are also Tackling these tasks will take
The PBOC’s mention of a substantial, pointing to the years. There’s a small chance that
“bottom line” mindset to the downside. Many longer-term reforms are rolled back. The
exchange rate in recent months policy goals – deleveraging the bigger risk, though, is that policy
can be interpreted in two ways: it economy, tightening makers turn a blind eye to further
may refer to a particular level, or environmental regulation, and buildup of debt in the pursuit of
a situation that the central bank controlling local government growth. The year ahead will tell
wants to avoid — probably a financing – involve a degree of whether China has the finesse to
disorderly decline. We think sacrifice on growth. Supporting manage the economy.
China Forecasts
INDICATOR 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2017 2018 2019 2020
GDP, YoY% 6.8 6.7 6.5 6.4 6.1 6.2 6.3 6.4 6.9 6.6 6.3 6.2
CPI, YoY% 2.2 1.8 2.3 2.5 2.5 2.3 2.4 2.4 1.6 2.2 2.4 2.5
Central Bank Rate 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35
USD/CNY 6.28 6.62 6.87 6.96 7.06 7.14 7.18 7.18 6.51 6.96 7.18 7.36
24Bloomberg Economics
Japan
25Bloomberg Economics
Tax Hike, Trade War Spell
Slower Growth in 2019
By Yuki Masujima
The year ahead will be difficult Growth to Slow to Economy’s Potential Rate
for Japanese Prime Minister
Shinzo Abe, as he tries to keep
the economy on an even keel in
the face of U.S. protectionism
and another increase in the sales
tax. Fiscal stimulus, continued
monetary easing, and a mild yen
decline should extend the
growth streak in 2019 to seven
years, if at a slower pace. But the
costs of supporting growth now
could involve a payback later.
Higher spending will require
deeper cuts ahead to get debt Source: Cabinet Office, Bloomberg Economics
under control. Financial
imbalances building up as a A slowdown in exports will be the beyond the BOJ’s control — are
result of the Bank of Japan’s main drag on growth, as the U.S.- keeping prices in check,
easing will inevitably come back China trade war dents supply- including falling mobile phone
to bite. The risks to growth are to chain demand. Private capital charges, and a downward bias in
the downside. A benign outcome expenditure is likely to weaken housing costs due to the way
hinges on an absence of shocks but still contribute to growth, imputed rents are calculated.
from overseas risks, ranging from underpinned by investment in
the U.S.-China trade war to new facilities and technologies. A The BOJ is likely to maintain
political instability in Europe and 0.8% expansion would be on par stimulus, keeping cyclical factors
sharp moves in oil prices. with potential — just enough to supportive of its reflation drive.
keep reflationary forces from That said, with its assets now
Growth Easing retreating. exceeding GDP, the risks are
Bloomberg Economics forecasts building. We expect the BOJ to
growth will ease to 0.8% in 2019, Oil Prices steer a steady course, while
down from an estimated 0.9% in The year ahead is likely to be keeping an open mind to
2018 and 1.7% in 2017. That frustrating for the BOJ. Core tweaking its framework should
outlook is based on three inflation will probably the financial imbalances become
assumptions — a sales-tax hike to hover around 1% through the end too large.
10% from 8% going ahead in of 2019 — where it was in
October 2019, the government September 2018, and only Sales Tax
boosting fiscal stimulus before halfway to the 2% target. A The sales-tax hike will be a
and after the increase, and the recent tumble in oil prices, if hurdle. Even so, the economy
BOJ making no major policy sustained, would add to the may be better able to cope with
adjustments. challenges. What’s more, the increase than it did the last
structural and statistical factors — one in 2014. This time around,
26Bloomberg Economics
Fortunately for Abe’s reflation efforts, the
economy is likely to continue feeling a
tailwind from a weaker yen
Primary Budget Balance Isn’t Likely to Improve Near Term BOJ’s policy of pinning down
rates, is widening the U.S.-Japan
yield differential — a force for yen
depreciation. We expect the yen
to weaken to 114.4 per dollar in
4Q 2019, compared with around
113 now. For exporters, this
should help offset weaker foreign
demand. The boost to import
prices should also help stoke
inflation. A worry is a risk-off
shock that spurs demand for
the safe-haven yen, throwing
those forces into reverse.
Source: Cabinet Office, Bloomberg Economics The year ahead will see much
preparation for the 2020 Tokyo
the hike will be smaller — 2 ppts, surplus until fiscal 2027. Public Olympics, which should be a
instead of 3 ppts. Exemptions for debt — likely at 240% of GDP in source of support for domestic
groceries, newspapers and other 2019 — will remain a constraint on demand. Once the games have
items will reduce the effective fiscal policy. come and gone, though, the
increase to 1 ppt. In terms of economy could be poised to
sustaining growth, this is Abe’s Reflation slow. Policy support for growth in
positive. In terms of reining in a Fortunately for Abe’s reflation 2019 — which will give rise to
budget deficit, it’s not. Even efforts, the economy is likely to more debt and financial
under the most optimistic continue feeling a tailwind from a imbalances — increase the risk of
scenario, the government doesn’t weaker yen. Federal Reserve a deeper slump further out.
expect to reach a primary budget tightening, combined with the
Japan Forecasts
INDICATOR 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019
GDP, SAAR QoQ% avg. -0.9 3.0 -1.2 1.1 0.9 1.4 2.0 -3.1 0.9 0.8
Unemployment Rate, % avg. 2.5 2.4 2.4 2.3 2.3 2.3 2.2 2.2 2.4 2.3
Headline CPI, YoY% avg. 1.3 0.6 1.1 1.2 0.9 1.2 1.0 1.0 1.0 1.0
Core CPI, YoY% avg. 0.9 0.8 0.9 1.0 1.0 1.0 0.9 1.0 0.9 1.0
Central Bank Rate (EOP) -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
10-Year Yield Target (EOP) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
USD/JPY (EOP) 106.3 110.9 113.7 12.7 113.0 113.7 114.1 114.4 112.7 114.4
27Bloomberg Economics India 28
Bloomberg Economics
Lower Oil Is a Game Changer
for Economy, RBI in 2019
By Abhishek Gupta
India’s macroeconomic stability — are also likely to support growth inflation to average 2.6% in 2H
hostage to the direction of crude and address concerns about a fiscal 2019, below the RBI’s
oil — will benefit significantly liquidity crunch and strict macro- projected 4.2% average and
from a recent collapse in prices. prudential banking norms. On a down sharply from an average
The economy is likely to register quarterly basis, GDP growth is 4.3% in 1H. Inflation in fiscal 2020
improvement on all major expected to slow until mid-2019 is forecast to increase to 3.6% —
parameters in the year ahead. due to adverse base effects. still a significant undershoot of
We expect a steady recovery in Once growth starts to pick up the RBI’s projected range of 4.5%
growth, narrower current account again, though, the output gap -4.8%.
deficit, stronger currency, and will start closing. We forecast a
lower inflation. 7.6% expansion in the fiscal year A number of factors are likely to
through March 2020, up from a temper inflation: the recent drop
These conditions would be projected 7.2% in fiscal 2019 and in crude oil prices; low food
conducive to a looser monetary 6.7% in fiscal 2018. We estimate inflation due to advances in
policy — though our baseline potential growth at 8%-8.5%. agricultural productivity; reduced
scenario is for the Reserve Bank indirect tax rates on goods and
of India to remain on a long Inflation Slowing services; lower transportation
pause, given its hawkish bias. Consumer price inflation has costs due to efficiency gains in
Political risks will also come to undershot the RBI’s 4% mid-point the trucking industry; and output
the fore with Prime Minister target for three consecutive growth that’s below potential.
Narendra Modi facing elections months through October. Our
next year. conservative inflation RBI’s Neutral Stance
projections, which assume Brent We expect slowing inflation to
Gradual Recovery will average $70 per barrel, drive the RBI back to neutral at
We see GDP growth continuing suggest a further slowdown in its upcoming policy review in
to recover gradually in 2019, the months ahead. We expect December, from its current
after adjusting for base effects.
Structural reforms implemented
by the Modi administration in the GDP Growth Expected to Recover Gradually
last few years have made the
economy more resilient to
external shocks.
Demonetization and a new
indirect tax are yielding a higher
tax-to-GDP ratio while a new
bankruptcy law is supporting a
stronger credit culture and
banking system. India’s improved
ease of doing business ranking is
boosting investor confidence.
Recent joint policy measures by
the government and central bank Source: Bloomberg Economics, Ministry of Statistics and Programme Implementation
29Bloomberg Economics
Our base case is for a long pause on rates
through end-2019
stance of calibrated tightening. expect the rally to extend into Risks to Financial Markets
Given its strong hawkish bias, our next year, as cheaper oil prices National elections around May
base case is for a long pause on reduce the import bill and help 2019 pose a risk to political
rates through end-2019. The narrow the current account continuity. Another term for
consensus projection is for two deficit. India’s equity and debt Modi’s government would bode
25 basis point rate hikes in 2019. should also become more well for further reforms and
attractive to foreign investors, as market sentiment. A win for a
Lower Crude Price growth prospects improve and united opposition led by the
Sustained weakness in oil prices inflation pressures ease. The Congress and constituted of
would pose a risk to our baseline result: a smaller current account smaller regional parties with
scenario. If Brent stays below $65 deficit financed by increased different ideologies would likely
a barrel, inflation would likely inflows on the capital account. hurt investor sentiment.
breach the 2% lower end of the
RBI’s target range by December. Our currency forecasting model Further clarity is expected on a
In our view, that would force the projects a further 4% political stand-off between the
RBI to deliver a rate cut at its appreciation in the rupee to 67 government and the RBI. A
February policy review, albeit per dollar by March 2020, committee to be set up to decide
with hawkish commentary. subject to seasonal variations, if on the RBI’s surplus capital
Brent stays around $60 a barrel. framework will submit a report in
Stronger Currency Should Brent rebound to about 2019. An early decision to
The rupee has roared back to life $70, our model suggests the transfer surplus funds to the
with the pullback in oil prices, rupee would move in a range of government could help reduce
after plunging to a record low 70 to 72 against the dollar. bond yields.
against the dollar in October. We
India Forecasts
INDICATOR 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019 2020
GDP, YoY % 8.2 7.4 6.7 6.4 6.3 7.6 8.1 6.7 7.2 7.6
GVA, YoY % 8.0 7.4 6.5 6.3 6.2 7.5 8.0 6.5 7.1 7.5
Headline CPI, YoY% 4.8 3.9 2.6 2.6 2.8 3.5 4.1 3.6 3.5 3.6
USD/INR 67.1 70.1 71.8 69.3 68.6 69.1 68.6 64.5 69.6 68.5
Central Bank Rate 6.25 6.50 6.50 6.50 6.50 6.50 6.50 6.00 6.50 6.50
Full year values represent the fiscal year ended March.
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