Deutsche Bank

Annual Report 2015

The Global Economy

In 2016, global economic growth is projected to be more or less flat at 3.0 % and thus be below trend rate for the fifth year in succession. The global inflation rate is expected to pick up to 3.7 % mostly since commodity prices are expected to have a more moderate negative impact on overall prices than compared to the prior year. We expect that growth in the industrialized countries will slow to 1.3 %, with a muted rise of 0.8 % in consumer prices. By contrast, we expect a pick-up in growth to 4.3 % in the emerging markets. There we expect inflation to be 5.7 %.

Eurozone GDP is expected to climb by 1.4 % in 2016, supported by low oil prices and a slow recovery in the labor market. The eurozone economy will also continue to be supported by the expansionary monetary policy of the European Central Bank (ECB) which will probably make its monetary policy even more expansionary in the course of the year. Geopolitical risks, the stuttering structural reforms and the high levels of private and public debt are having a dampening effect, however. Consumer prices are projected to rise by 0.2 %. The German economy is expected to expand by 1.7 % in 2016, driven by domestic forces alone.

In the U.S., we expect an economic growth of 1.2 % in 2016. While the external environment is acting as a drag as a result of the strength of the U.S. dollar and the modest global demand as well as the oil-price-driven negative impact on the energy sector, the solid labor market development and the performance of the housing market are generating positive stimuli. Consumer prices will probably rise by 1.2 %. The Federal Reserve's monetary policy should provide further stimulus for the U.S. economy overall. We expect the Fed policy rate to stand at 0.6 % by year-end 2016.

The Japanese economy is likely to shrink by 0.3 % in 2016. Growth of domestic and external demand is expected to be negative. Monetary policy will continue to be extremely expansionary. We expect inflation to be 0.2 %. Growth in the emerging market countriesis expected to rise in 2016. Economic growth in Asia (excluding Japan) is expected to remain more or less flat at 6.1 %, with inflation at 2.7 %. The Chinese economy is likely to grow by only 6.7 % in 2016, with inflation at 1.8 %, largely due to the cooling of the secondary sector and investments. Monetary policy will probably become more expansive in order to bolster the economy.

Numerous risks are currently increasing the uncertainty of our global forecast by a greater degree than usual. The global financial markets could react much more negatively to the normalisation of U.S. monetary policy than assumed. This could have a negative impact on households and corporate expenditure worldwide and result in much higher capital outflows from emerging markets. The declining oil price is exacerbating the problems in the oil-producing countries and complicating the financing of energy-related investments. Moreover, geopolitical risks could escalate, especially those arising from conflicts in the Middle East. Also, a hard landing in China could trigger global upheaval. In Europe, a flare-up in the debate on monetary policy going forward and the future of the eurozone, insufficient deleveraging in the private and public sectors, a halt in implementing structural reforms or, also, increasing support for populist parties could potentially have a substantial impact on our forecasts. The U.K. referendum, regional separatist movements and the ongoing challenging negotiations with Greece pose further risks. Moreover, the refugee crisis could further exacerbate the political discord in the European Union.