Global Economic Weekly GEMs following the Fed wherever it goes

BofA Merrill Lynch Global Research - Viernes, 12 de Septiembre

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Global: GEMs following the Fed wherever it goes  We think fear foreign exchange weakness will prompt several EMs to follow the Fed once it hikes in 2015. We thus expect more rate hikes than what is priced in by the market in many EM countries. 

United States: Fed up? 

We expect some mildly hawkish signals out of the Fed next week. We have pulled forward the timing of the first rate hike to next June, from September. 

China: key amendments to the Budget Law 

China's top legislature passed a long-awaited set of amendments to the 1994 Budget Law on 31 August. The new law allows local governments to issue bonds with strict conditions and introduce greater transparency in the budget. The new Budget Law revision marks an important milestone and forms the basis of upcoming fiscal reforms. 

Euro area: downgrading GDP 

We are downgrading our euro area GDP growth forecasts for 2014 and 2015 by 0.2ppt each, to 0.8% and 1.3%. This reflects the weaker than expected 2Q and slower investment and net export recovery in 2H than we expected. 

Japan: reasons for rebound in capex 

In addition to improved profitability, we believe three other factors support a rebound in capex; the virtual elimination of excess capacity, negative real interest rates and manufacturers' repatriation of capex.  

Emerging Asia: holding up 

Exports took a turn in the past week with China and Taiwan releasing stronger-than-expected August readings. Benign inflation in China leaves room for more stimulus measures. Policy rate was raised by 25bp in the Philippines to mitigate second-round inflation. 

EEMEA: Poland - frustrated seeing another delay of recovery

Our Warsaw visit shows growth expectations have fallen to 3% or lower. Concerns are justified but a resolution of the Russia-EU dispute or effective ECB easing would allow Polish growth to bounce. Rate cut expectations are becoming more sanguine. 

Latin America: Colombia - 12.5tn pesos in search of a tax 

Tax changes being considered this year will at best cover the 2015 budget gap. Unless Colombia embarks on an ambitious tax reform now, it is likely to have to continue approving small-scale tax increases every year as it adjusts to the exigencies of the fiscal rule. 

UK: What if Scotland votes "Yes"? 

The Scottish Independence vote looks close. But the effects on the UK from a "Yes" vote to leave might only be moderate. 

Australia: real GDP does not tell the entire story 

We assert that real GDP does not capture the effects of the sharp swings in Australia's terms of trade over the last decade, but another measure known as real gross domestic income, or GDI, does capture them. The Australian economy looks decidedly weaker than headline GDP figures would suggest. 

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