A. GLOBAL ENVIRONMENT
- Brexit raises global recession fears. Amid still-slow and weak global growth, the Brexit’s aftershocks have cast a doubt over the global economy. There remains a lot uncertainty over the precise impact of Brexit on global financial markets and economy, particularly in the United Kingdom (UK) and European Union (EU). However, it is comforting that major central bankers have taken all necessary steps to contain the risk of a global financial contagion as well as to avert a sharp slippage in global growth.
- Mixed performance in advanced and emerging economies. The US economy is somewhat stabilizing but not that exciting. The moderate growth in eurozone will be challenged by negative spillovers from Brexit. Japan’s economy continues to mire in stagnation even if policymakers step up stimulus measures. The ongoing rebalancing of China’s economy hit the growth target in 1Q16 amid worries of an “L-shaped” recovery.
- Will Brexit recalibrate global monetary policy? Major central bankers are facing competing interests. Brexit may force stretched central banks to do more with less given the limited monetary space. The Bank of England (BoE) and European Central Bank (ECB) will have to do more monetary easing. The US Federal Reserve (Fed)’s forward guidance of future interest rates hike not only will be data dependent but also weighs on the Brexit’s impact on global economy. Some Asian central banks might err on the side of monetary easing.
- Key events to watch. Global financial and economic scenarios will continue to be shaped and influenced by a number of key events or policies uncertainty. i) The Fed’s forward guidance of interest rates direction; ii) the cloud of uncertainty surrounding the UK leaving EU; iii) a disruptive China’s rebalancing process; iv) the unexpected large devaluation of Chinese renminbi; and v) the US Presidential election on 8 November.