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10.11.2017 22:29 World Economy Review - October 2017

The Organization of the Petroleum Exporting Countries (OPEC) released the 2017 version of its World Oil Outlook. Perhaps the most interesting projection in the new Outlook calls for an increase in demand for oil of 15.8 million barrels a day between 2016 and 2040.

World demand in 2016 totaled 95.4 million barrels a day and the latest OPEC forecast pushes that to 111.1 barrels a day in 2040. That total comprises a decline of 8.9 million barrels a day in demand from developed (OECD) countries and an increase of 24 million barrels a day in developing countries` demand. China alone will add 6.0 million barrels a day to its demand over the forecast period and India will add 5.9 million barrels a day.

The Outlook also foresees a decline in demand growth: Long term global oil demand growth is forecast to decelerate steadily, falling from an annual average of around 1.3 mb/d during the period 20162020 to only 0.3 mb/d every year between 2035 and 2040. This deceleration is a result of slowing GDP growth, assumed oil price increases, a structural shift of economies towards a more service-oriented structure, efficiency improvements as a result of tightening energy efficiency policies and/or technological improvements, and oil facing strong competition from other energy sources.

Among those other energy sources is electricity as fuel for electric cars. Last summer, Bloomberg New Energy Finance (BNEF) forecast that electric vehicles will account for 54% of global car sales by 2040. BNEF further expects just over a third of all cars on the road in 2040 to be electric. That amounts to 530 million electric vehicles in a global fleet of about 1.56 billion, up from 1.28 billion in 2015.

In OPEC`s Outlook, the cartel reaches a similar number for the EV market by 2040 in what it calls its Sensitivity Case:

Focusing on the penetration of EVs [electric vehicles] in the passenger car segment, an alternative sensitivity has been developed: the Sensitivity Case. In this sensitivity, a more optimistic view is taken on the penetration of EVs with the assumption that annual EV sales reach 80 million by 2040. This would mean that three out of every five cars sold in 2040 would be electric.

Under the assumption that the increasing EV penetration in the passenger car segment in the Sensitivity Case spreads, at least partially, to commercial vehicles, particularly in the medium-duty segment, oil demand in 2040 is reduced by 2.5 mb/d compared to the Reference Case, to total 108.6 mb/d. Moreover, global oil demand is estimated to plateau around this level in the second half of the 2030s.

For OPEC, this Sensitivity Case is, in fact, a worst case scenario if BNEF`s projection turns out to be true. There are about 1.2 million EVs on the world`s roads and highways today, and if there are 530 million by 2040 that yields a compound annual growth rate of more than 27%.

While demand for oil and refined petroleum products for transportation still will be substantial, by 2040 the handwriting could be on the wall. OPEC`s projection of a plateau of 108.6 million barrels a day of demand by the late 2030s implies that there is a cliff somewhere at the other side of that plateau. The only question is how steeply it drops off.

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08.10.2017 12:25 World Economy Review - September 2017

The International Monetary Fund (IMF) is more optimistic about global recovery than in July, while urged countries to take the upswing to carry out reforms to support inclusive and sustainable growth, China`s Xinhua news agency reported.

The long-awaited global recovery is taking root, said IMF Managing Director Christine Lagarde in a speech ahead of the IMF/World Bank annual meetings.

In July, the IMF expected the global economy to grow 3.5 per cent this year and 3.6 per cent in 2018. Lagarde said that nearly 75 per cent of the world is experiencing an upswing the broadest-based acceleration since the start of the decade.

Besides the acceleration in global growth, financial stability is improving as the banking system is more stable and market confidence increases, said Lagarde.

We are seeing some sun break through - but it is not a clear sky, said Lagarde, citing high levels of debt, excessive risk-taking in financial markets, and heightened geopolitical tensions as threats to the global recovery.

Lagarde called on countries to take advantage of the upswing to undertake reforms, such as investing in education, research and development, as well as infrastructure in order to boost productivity and foster inclusive growth.

The IMF research warned that weather impacts may have lasting effects on economies. The report, released at the end of September, points back to the unprecedented rise in global temperatures over the last 40 years and warns that the increasing global temperatures may end up lowering output, particularly in countries with warm climates.

It`s impossible to blame climate change for any individual storm, and much scientific modeling forecasts the effects of climate change to evolve over many years. The weather`s effect on the economy will vary from year to year and quarter to quarter.

But the IMF research predicts that warmer temperatures will eventually lead to agricultural output declines and a reduction in productivity. It also spells out how climate scientists are predicting more intense and destructive storms as the sea surface temperature continues to rise with their analysis suggesting that "the average country would suffer an additional 0.1 percent of per capita output loss every time it is hit by an average tropical cyclone, with smaller states experiencing 0.2 percent greater damage."

Tropical cyclones and hurricanes are one of the most destructive forces of nature, and have cumulatively caused damage of $548 billion worldwide during 2000 to 2014, according to the International Disasters Database.

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08.09.2017 17:15 World Economy Review - August 2017

The world economy looks well on its way to a year of faster, firmer growth after rising at its most rapid pace in 2 1/2 years in the second quarter.

The expansion is broad based as long-time laggards Japan and the euro area perk up. Even more encouraging: The gains look sustainable because they`re not generating much in the way of inflation or other excesses that frequently presage a downturn, economists said.

Global gross domestic product is projected to increase by 3.4 percent in 2017 and 3.5 percent in 2018, according to the median forecast of economists surveyed by Bloomberg. While that would be a come down from an estimated 4 percent plus pace in the second quarter, it would still represent a clear acceleration from last year`s 3.1 percent advance.

The pick-up has been paced by budding rebounds in Europe and Japan, two economies that until now had been seen as drags on the global economy.

After years of lackluster growth, the euro-area economy is starting to build momentum. The expansion accelerated to 0.6 percent in the second quarter, and it`s more evenly spread across the 19-nation region than in the past. The Netherlands posted the strongest data in a decade and Italy, long an slouch in the region, may see the best performance since 2010 this year.

That`s good news for European Central Bank President Mario Draghi, who wants to make sure the recovery is well established before reining in stimulus. Inflation is still undershooting the ECB`s goal and there`s little sign of significant wage gains as yet. That`s allowing Draghi to take his time in scaling back support for the region`s economy.

A 4 percent annualized surge in Japanese GDP in the second quarter put the nation in an unexpected spot: at the top of the growth table among the Group of Seven industrial economies.

The strongest domestic demand in years helped drive Japanese GDP to a sixth consecutive quarter of expansion, elevating hopes for a sustainable recovery in an economy that`s been better known in recent years for tepid inflation and a declining population than beating forecasts.

While the unexpected strength in Europe and Japan is providing fuel for the global upswing, the expansion`s fate ultimately rests on the performance of the world`s two biggest economies, the U.S. and China. And there the omens are favorable.

JPMorgan Chase & Co. this week raised its forecast for U.S. growth in the third quarter to an annualized 2.25 percent from 1.75 percent. The move followed news of an unexpectedly strong rise in retail sales in July. GDP rose 2.6 percent in the second quarter.

Shoppers splurged at Internet retailers, department stores, restaurants and auto dealerships last month, boosting sales by 0.6 percent, the most this year.

Consumers are benefiting from a strong jobs market and healthy balance sheets while companies are enjoying a revival in profits and rock-bottom borrowing costs, he said. At the same time, the risks to the U.S. from abroad have diminished as world growth has strengthened.

Low inflation -- it`s fallen short of forecasts for five straight months -- means there`s little pressure on the Federal Reserve to act forcefully to rein in the recovery, even with unemployment at a 16-year low.

In China, a multi-year slowdown has stabilized, with economists forecasting an expansion of 6.7 percent this year. The IMF increased its estimate for the nation`s average annual growth rate through 2020 -- to 6.4 percent from 6 percent -- while warning that it would come at the cost of rising debt that increases medium-term risks to growth.

Of course, there`s always the chance that something could happen to upset the worldwide expansion, from an outbreak of hostilities between North Korea and the U.S. to a sudden swoon in financial markets as central banks scale back their support.

Yet for now at least, the global economy is on a positive trajectory, said Bloomberg Intelligence Chief Economist Michael McDonough. There`s a pretty good foundation to build on for the next year or so.

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07.08.2017 16:15 World Economy Review - July 2017

The National Institute of Economic and Social Research have revised forecasts for world GDP growth in 2017 upward as several major economies exceed expectations for the year.

Global growth has been revised to 3.6% by the NIESR, while it has maintained its 2018 and long-term projections of 3.6% and 3.4% respectively.

In the report released by the research institute, strong performances from the Euro Area and Japan in particular drove the 2017 forecast higher.

Both areas have seen super-low interest rates in recent months and years, with the NIESR pointing towards this as a factor in their economic growth.

Recent data for several major economies point to a more significant pick-up in global growth this year than we projected in May. Among the advanced economies, the upward revisions have been most marked for the Euro Area and Japan, the report said.

The improvement in growth performance seems due partly to the highly accommodative monetary policies of recent years but also to a turnaround in the stance of fiscal policies since 2015.

A lessening of political instability in Europe was also referenced as a major reason behind the revision of the forecast, but the NIESR added it was still at the risk of further weakness owing to political events.

In the euro area, political uncertainty has been reduced by the French elections, but risks of financial instability remain, especially with an incomplete banking union. More broadly, economic recovery remains fragile and could be derailed by policy mistakes.

According to the report, lower-than-expected inflation across major economies presents a unique dilemma for central banks as they seek to maintain sustainable growth.

Past relationships both between unemployment and inflation, and between interest rates and demand, seem unreliable, it said.

Economic recoveries are fragile, the costs of any renewed weakness are potentially high, and consistently below-target inflation in recent years jeopardizes the credibility of the symmetry of inflation targets.

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09.07.2017 13:17 World Economy Review - June 2017

In its latest economic outlook, the Organization for Economic and Cooperation Development (OECD) projected accelerated global growth for the 2017-2018 period, saying "greater efforts are needed to ensure that the benefits from growth and globalization are more widely shared."

Updating its last estimate issued on March, the Paris-based think-tank saw global growth in 2017 at 3.5 percent, up by 0.2 percentage. The figure was set to accelerate to 3.6 percent in 2018 due to "stronger business and consumer confidence, rising industrial production and recovering employment and trade flow."

"Among the major advanced economies, the recovery will continue in the United States," the organization estimated.

However, it revised down its gross domestic product (GDP) forecast this year to 2.1 percent this year and 2.4 percent next year from previous estimates of 2.4 percent and 2.8 percent respectively.

The organization report showed a steady outlook for the euro area at 1.8 percent over the period while that of Japan would increase to 1.4 percent this year before slowing to 1.0 percent in 2018.

In China, growth is expected to slow to 6.6 percent in 2017 and 6.4 percent the following year in 2018, according to the OECD data.

"After five years of weak growth, there are signs of improvement. The modest cyclical expansion underway will not, however, be sufficient to sustain strong gains in standards of living across OECD countries," said OECD Secretary-General Angel Gurria.

Gurria recommended "deeper, sustained and collective commitment to coherent policy packages that support inclusiveness and productivity growth," to ensure that the benefits of economic recovery would be translated into the improvement of people`s standards of living.

"We need a more inclusive, rules-based globalization that works for all, centered on people`s well-being," he added.

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