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Schroders downgrades global growth forecast

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Keith Wade, Schroders’ chief economist, has announced the firm’s global growth forecast for 2016 is likely to be downgraded.

He believes a number of factors point towards disappointing growth in 2016, chief amongst them China. He places the true rate of growth in China this year at about 6 per cent, rather than the official figure of 6.9 per cent. Schroders’ global growth forecast for 2016 currently stands at 2.9 per cent.

“The world economy seems stuck with growth around about 2.5 per cent,” Wade stated.

This figure suggests China’s prospects will remain dull unless there is significant stimulus. Wade also noted China is promoting deflation by exporting its excess capacity, which is one of the reasons British steel firms are struggling to compete in the world market.

In the US, the effects of the contraction in the shale gas industry have offset part of the benefits to GDP of falling oil prices. While there is evidence the US public is spending the gains of falling petrol prices, most of it is focused on domestic services such as eating out, rather than goods that might have given a lift to world trade.

Wade believes the underlying weaknesses in the global economy are reflected by global trade running at less than a third of normal levels. He expects the Federal Reserve will be cautious about raising interest rates given the weak rates of recovery in many countries, with a rise to perhaps 1 per cent by the end of 2016 and 2 per cent by the end of 2017.

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