G4 Q2 2010: Walking the tightrope

Although our forecast predicts a gradual recovery, driven primarily by the United States and Asia, the risks to this central view are both much uglier and collectively more likely – hence the tightrope. The forecast presents two evils: weak growth with inflation, or even weaker growth and deflation. According to the forecast, a repeat of Japan’s lost decade of poor growth and deflation – is a far bigger short term risk than inflation. We attach a roughly two in five chance of outright deflation across the G4 as a whole, during the course of 2011.

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