CIO Insights - August 2016 Macroeconomics 5 MACROECONOMICS The impact of uncertainty Uncertainty regarding the Brexit referendum result is likely to burden economic development in the UK - and the Eurozone - and lead investors and consumers to spend less. We expect a deceleration of economic growth in the UK to 0.8% next year, down from an expected 1.3%in 2016. This should lead to declining imports. As the UK's most important trading partner, the Eurozone is likely to be materially affected by this and we have trimmed our Eurozone growth forecast to 1.2% in 2017 down from an expected 1.4% in 2016. Countries with less extensive trading links to the UK should be much less affected. Our U.S. growth forecast of 2% for 2017 remains unchanged from pre-referendum levels, as do our forecasts for Japan and emerging markets. It's our opinion that central banks have acknowledged the result of the Brexit vote, and may alter policy to cushion any broader economic repercussions. The U.S. Federal Reserve (Fed) is likely to raise official rates only moderately. At most, we would expect two rises of 25 basis points each by mid- 2017. Discussions whether the European Central Bank (ECB) will Key growth forecasts China a Eurozone Japan • US 2016 GDP CIO forecast for 2016 6.9% 6.3% 1.7% - 1.4% 0.5% ♦ 0.5% 2.0% - 1.8% start tapering QE in spring 2017 have been temporarily muted. The Bank of England (BoE) has once again joined the club of central banks pursuing quantitative easing (QE) policies and has cut its base rate by 0.25%; further policy interventions are possible. The Bank of Japan (BOJ) is likely to extend its asset purchase program and to cut rates further, but the Brexit vote is not to blame. Rather, Japan's central bank is worried about meager economic growth and near-zero inflation rates. Emerging markets (EM) might be indirect beneficiaries of current developments, as EM governments and corporations have