Global Macroeconomic & Renewables Outlook Key Views & Forecast Takeaways 25 November 2019
Disclaimer THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research. fitchsolutions.com | fitchconnect.com 2
Global & Europe Macroeconomic Outlook Daniele Fraietta – Global Economist
1 The Global Economy
Global Growth Momentum Continues To Weaken Downward Revisions To Our 2019 Growth Forecasts • The global economic outlook has Real GDP Growth, % 7 deteriorated since mid-May and May October headwinds to growth remain strong. 6 • This has led us to revise our 2019 global growth forecast over the past 5 months to 2.6%, from 3.0% in May. 4 • Macro risks to growth are multiple and 3 risks to growth remain on the downside. 2 • However, our baseline scenario does not assume recession in 2019 and 2020, as we see a number of upside 1 factors act as a buffer, limiting the downside momentum of the global 0 China World US UK Eurozone Germany economy. Source: Fitch Solutions fitchsolutions.com | fitchconnect.com 5
2 The Eurozone
Trade And Manufacturing Cloud Eurozone’s Outlook Economic Momentum Moderating Sentiment Surveys Show No Signs Of Rebounding Eurozone – IFO, ZEW, Manufacturing and Services PMIs Real GDP Forecasts, % 2.2 ZEW (RHS) 2019 2020 62 40 Sentix (RHS) 60 30 1.7 Manufacturing PMI (LHS) 58 20 1.2 56 10 54 0 0.7 52 -10 0.2 50 -20 48 -30 -0.3 Italy Germany Belgium Eurozone France Netherlands Austria Greece Portugal Spain 46 -40 44 -50 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 • • Eurozone growth is slowing. We have lowered our real GDP Limited fiscal and monetary policy room to boost growth. growth forecasts to 1.2% in 2019 and in 2020. • Risks to outlook tilted to the downside as there are multiple • Brexit-related uncertainty and protracted US-China trade macro risks to growth, including ongoing weakness in tensions will remain key growth-dampening factors. manufacturing and weakening sentiment. Source: Eurostat, Fitch Solutions Source: ZEW, Sentix, Markit, Fitch Solutions fitchsolutions.com | fitchconnect.com 7
Labour Market To Remain Supportive Of Growth Unemployment At Or Close To Pre-Crisis Levels • The global economic outlook has Unemployment Rate, % deteriorated since mid-May and 30 10 Germany Italy Greece Eurozone (RHS) headwinds to growth remain strong. 25 9.5 • This has led us to revise our 2019 global growth forecast over the past 20 9 months to 2.6%, from 3.0% in May. 15 8.5 • Macro risks to growth are multiple and risks to growth remain on the downside. 10 8 • However, our baseline scenario does 5 7.5 not assume recession in 2019 and 2020, as we see a number of upside factors act as a buffer, limiting the 0 7 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 downside momentum of the global economy. Source: Eurostat, Fitch Solutions fitchsolutions.com | fitchconnect.com 8
Monetary Policy More Accommodative For Longer More Monetary Stimulus Ahead • The European Central Bank has Rates, % embraced a more accommodative 4.5 3 monetary policy stance, delivering on its 4 2.8 recent dovish rhetoric. 3.5 2.6 • 3 2.4 The key factors behind additional monetary stimulus were subdued 2.5 2.2 inflation and inflation expectations 2 2 against a backdrop of weakening 1.5 1.8 growth momentum. 1 1.6 • Main policy rate at 0.00% in 2019 and 0.5 1.4 2020. 0 1.2 -0.5 1 • Further monetary stimulus to be Q204 Q404 Q205 Q405 Q206 Q406 Q207 Q407 Q208 Q408 Q209 Q409 Q210 Q410 Q211 Q411 Q212 Q412 Q213 Q413 Q214 Q414 Q215 Q415 Q216 Q416 Q217 Q417 Q218 Q418 Q219 delivered over the next quarters through additional cuts to the deposit rate Policy Rate HICP 5Y5Y (RHS) and/or larger monthly bond purchases. Source: Bloomberg, Eurostat, Fitch Solutions fitchsolutions.com | fitchconnect.com 9
3 Brexit
Brexit: Three Scenarios For December 2019 – H1 2020 Brexit Headwinds Increase Recession Risk Brexit With Current Deal (60% probability) UK – Real GDP Growth Scenarios In Case Of Hard Brexit (%) • PM Boris Johnson wins election, passes current deal, and UK leaves EU Best (Hard Brexit) with transition period to end Dec 2020 (extendable by 1 or 2 years) Medium (Hard Brexit) Worst (Hard Brexit) 2.0 Article 50 Extension Beyond H1 2020 (25% probability) • Labour-Lib Dem-Scottish National Party coalition or a Labour majority 1.5 emerges and arranges a softer Brexit deal with the EU and a second 1.0 referendum, with a delay beyond H1 2020 0.5 • Second referendum could approve softer Brexit deal or result in decision to remain in EU 0.0 -0.5 No-Deal Brexit (15% probability) -1.0 • Johnson fails to pass his Brexit deal through UK parliament -1.5 • Dec 2019 election ends in deadlock, EU does not grant suitable Article 50 2016 2017 2018 2019f 2020f 2021f extension beyond January 2020 Source: Fitch Solutions. f=Fitch Solutions forecast . fitchsolutions.com | fitchconnect.com 11
Irish Growth Set To Remain In A League Of Its Own Irish Outperformance Over EU Peers Set To Persist… …But Economy Not As Big As It Might Appear Real GDP, % chg y-o-y GDP & GNI*, EURbn 35.0 350 30.0 300 25.0 250 20.0 15.0 200 10.0 150 5.0 100 0.0 -5.0 50 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q219 Q319 2010 2011 2012 2013 2014 2015 2016 2017 2018 GDP GNI* Eurozone Ireland • • At of 4.5% over 2019-2020 Irish real GDP growth will GNI*, which factors out MNC activities suggest that the continue to outperform eurozone averages. economy is actually some 40% smaller than GDP suggests. • That said, the country’s national accounts remain artificially • Underlying domestic demand is in fact slowing, while a inflated by the activities of MNCs headquartered in Ireland. disorderly Brexit remains the biggest threat for the economy. Source: CSO, Eurostat, Fitch Solutions fitchsolutions.com | fitchconnect.com 12
Global Renewable Energy Outlook Daniel Brenden – Senior Power & Renewables Analyst
1 Global Renewables Forecast 2 Renewables Growth Drivers 3 Europe Regional Overview fitchsolutions.com | fitchconnect.com 14
1 Global Renewables Forecast
Non-Hydro Renewables To Drive Power Sector Growth Net Power Generation Additions Between 2018e and 2028f, TWh Global Power Generation Mix By Year 6,000 Non-Hydro Renewables 5,000 16% 4,000 Coal [PERCENTAGE] 32% 3,000 2,000 [PERCENTAGE] [PERCENTAGE] Inner Ring: 2018e Hydropower 16% Outer Ring: 2028f 1,000 0 [PERCENTAGE] -1,000 [PERCENTAGE] [PERCENTAGE] -2,000 Asia Western Eur Middle East Latin America Central And Sub-Saharan Nuclear North Am And North Eastern Africa 9% Africa Europe Natural Gas Oil Coal Hydropower Nuclear Oil Natural Gas Non-Hydro Renewables 25% 2% e/f = Fitch Solutions estimate/forecast. Source: EIA, National Sources, Fitch Solutions fitchsolutions.com | fitchconnect.com 16
Global Power Projects: Renewables Footprint Growing Global Project Pipeline By Technology, Across All Stages Global Power Project Pipeline Region By Type And Region, GW Of Development, GW 1,600 Non-Hydro 1,400 Renewables, Coal, 724.1 561.9 1,200 1,000 Oil, 26.4 800 600 Nuclear, 341.4 400 Gas, 536.6 200 0 Hydropower, Asia MENA LatAm North SSA CEE Western 592.8 America Europe Coal Gas Hydropower Nuclear Oil Non-Hydro Renewables Source: Fitch Solutions Key Projects Database fitchsolutions.com | fitchconnect.com 17
Global Renewables Projects: Big-Ticket Wind Dominating KPD Global Project Pipeline, Including Projects In Planning Global Renewables Project Pipeline Region By Type, GW And Under Construction, GW 140 Biomass, 7.3 Geothermal, 9.3 120 Solar - CSP, 20.4 100 80 60 Wind - Onshore, 124.5 40 Solar - PV, 143.6 20 0 Asia LatAm Western North MENA SSA CEE Europe America Wind - Offshore, 84.5 Biomass Geothermal Solar - CSP Solar - PV Wind - Offshore Wind - Onshore Asian project pipeline the most diversified, overarching Steadily expanding renewables project pipeline to support focus on offshore wind in Western Europe cross-sector growth • Increasing focus on cost-competitive CSP and PV Solar in Middle • Wind power dominating key projects database East/North Africa and Latin America • Solar power boosted by surge in distributed small-scale projects • SSA and CEE project pipelines lags behind Source: Fitch Solutions Key Projects Database fitchsolutions.com | fitchconnect.com 18
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