We believe that French economic growth will lag the rest of the
eurozone over the next two years as investment growth and external demand
remain lacklustre, while meagre wage growth and high unemployment mean that
household consumption – traditionally the key driver of the economy – will
become less able to support growth. France will experience a temporary terms of
trade boost in 2016 and 2017 which will keep its trade deficit from expanding
significantly. Beyond 2017 we expect the structural inefficiencies of the
French economy to result in expansion of its trade and current account
deficits.
We expect the Socialist Party to suffer in the 2015 regional
elections, further weakening President François Hollande’s position ahead of
the 2017 presidential election. While France will benefit from a cyclical
economic upswing in the eurozone we do not expect this will boost the economy
enough to save Hollande from elimination in the presidential election.
We expect the 2016 budget, which is the last to be submitted by
Hollande before the presidential election, to fall short of its deficit
reduction targets as expenditure cuts are insufficient to outweigh the proposed
tax cuts.
Although we are likely to see a gradual increase in positive rhetoric
towards structural reforms, Hollande is unlikely to become an ambitious
reformer of the French model. While we expect some reformers will take baby
steps in the right direction, the ability of Hollande to implement sweeping
reforms will be restrained by divisions within his own party and core support
base.
Major Forecast Changes
- We maintain our current GDP forecasts for 2016 and 2017.
- In light of a downward revision to our oil price forecasts, we have modestly narrowed our current account deficit forecast from 1.0% to 0.7% of GDP in 2016. We have narrowed our budget deficit forecast for 2016 from 3.6% of GDP to 3.5%.
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Despite a relatively strong H115, we have downgraded Hong Kong's real
GDP growth forecasts for 2015 and 2016 to 2.5%. Dual headwinds emanating from
the slowing Chinese economy and Hong Kong's overheated domestic property market
will weigh heavily over the coming years, undermining potential for a more
robust pick-up in economic activity.
We expect the ongoing run-up in Hong Kong residential property mprices
to fade heading in 2016, particularly as supply limitations subside and
interest rates increase. While the eventual correction is likely to be moderate
in nature, this will weigh on financial services and construction activity over
the coming years.
Extremely large-scale pro-democracy protests, which began in September
2014 and were only wound up in December, failed to bring about any significant
political compromise from either the Hong Kong or Chinese governments. The
rejection by the pan-democrats of Beijing's blueprint for 2017's Chief
Executive elections in June 2015 was another sign that the two sides remain
very far apart, and we continue to believe that Beijing will progressively
assert more domain over Hong Kong over the coming years.
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Having been propped up by fiscal stimulus and large volumes of EU
structural funding inflows in recent quarters, real GDP growth in Hungary will
slow as government-led investment projects are scaled back. Hungary’s domestic
demand recovery will trail its Central European peers due partly to weak credit
conditions. However, we see steady economic growth ahead, driven by
accelerating external demand, improving terms of trade and a better outlook for
private consumption.
Although public debt remains well above Emerging European averages and
is forecast to decline slowly in the coming years, Hungary’s sovereign profile
has improved in recent years following substantial external deleveraging.
Hungary’s current account surplus will remain sizeable in the coming years,
bolstered by falling oil prices. We forecast a long-term narrowing of the
surplus on the back of weak external demand. Strong deflationary forces and
additional monetary easing from emerging and developed peers will enable the
Hungarian National Bank to keep policy accommodative in coming quarters. The
bank’s pro-growth stance and policy coordination with the government pose
minimal risks in the short term as global monetary conditions remain loose, but
could damage its credibility over the long term.
Alleged infringements of civil liberties in Hungary will leave the
government ostracised from decision making at an EU level. This isolation will
pose little threat to government stability, given the strong popular support
the government enjoys, but it does pose a threat to Hungary’s influence on
regional policy.
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The Indian government led by the Bharatiya Janata Party has initiated
various reforms in its first year in office, and it will continue to enact
incremental rather than big bang reforms over the coming years. That said, the
lack of majority in the Rajya Sabha, India's 245-seat upper house, will remain
a hurdle to the implementation of large-scale reforms. State elections, which
will continue to take place over the coming years, will determine whether the
BJP will attain an upper house majority.
We remain broadly constructive on the Indian economy, and it will
become the fastest growing major economy in Asia owing to the government's
pro-business initiatives and accommodative monetary policy by the central bank.
However, weakening agricultural growth and slowing reform momentum, notably in
the infrastructure sector, will weigh on overall economic growth, and we
revised down our FY2015/16 (April-March) real GDP growth to 7.3%, from 7.6%.
The Reserve Bank of India (RBI) lowered its repo rate by 50bps to
6.75% at its September monetary policy meeting, and we expect the central bank
to keep its benchmark policy rate steady for the remainder of FY2015/16 (April-March)
as its shifts its focus towards improving the transmission of past rate cuts.
The RBI left the door open for further easing, and given that medium term
inflation is likely to remain subdued in FY2016/17 (coming in below the RBI's
target of 5.0%), we forecast another 50bps worth of interest rate cuts in
FY2016/17 to 6.25%.
We expect the Indian government to eventually implement the Goods and
Services Tax (GST) system over the coming years, but the proposed
implementation date of April 2016 is an optimistic one. Even if the GST
Constitution Amendment Bill is passed by the upper house, ratification by at
least half of the 29 legislative state assemblies is likely to be a time
consuming process. The Indian rupee will depreciate gradually against the US
dollar over the coming years, and we forecast the unit to average INR65.00/ USD
in 2015 and INR68.25/USD in 2016. The RBI will continue to accumulate reserves,
and will allow the currency to weaken amid weak non-oil export growth. However,
major rupee weakness is unlikely as continued economic growth and positive real
interest rates will lend support to the currency.
Major Forecast Changes
We have downgraded our FY2015/16 real GDP growth forecast to 7.3%
(from 7.6% previously) due to weakening agricultural growth and backtracking of
reforms, particularly in the area of land, which will weigh on the
infrastructure sector.
We have revised our average INR/USD forecasts for 2016 to INR68.25/USD
(versus INR66.78.75/USD previously) as the RBI will continue to accumulate
reserves in an attempt to reduce external vulnerability and improve trade
competitiveness.
We have revised our FY2015/16 (April-March) current account forecast
to a deficit equivalent to 1.5% of GDP (from 2.3% previously, but widening
marginally from 1.3% in FY2014/15) as it will benefit from terms of trade
improvement due to low oil prices.
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more information on this report, please visit- http://www.marketresearchreports.com/business-monitor-international/india-country-risk-report-q1-2016
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