The Global Macro Outlook:Beyond the cycle

The cold bath: With the high-frequency manufacturing sector data rolling over,page 2, we believe it is time to focus back on two underlying trends: weak labourforce growth in the leading economies and financial repression for decades. Weforecast moderate trend growth and low real and nominal bond yields globally.

The cycle rolls: we forecast 2018and 2019global real GDP growth (2.7% and2.6% respectively) to slow versus 2017(2.9%).

Labour force growth: The US is better positioned than Europe, Japan and evenChina. Nonetheless, even assuming an aggressive rebound in the core workingage (25-54year old) participation rate, just ~120,000jobs per month will benecessary to keep US unemployment stable in 2017. This pace decelerates tojust ~45,000K jobs per month in 2020. The aging demographic profile meansunderlying US labour force growth is likely to be just ~0.4% long-term.

For the US, the above combined with recent trends in productivity growth of~1.0% pa, that demographic forces suggest will continue, leads to our estimatefor US real potential output growth of just 1.4% pa.