Deutsche Bank trimmed its forecast for global economic growth and warns that financial markets face turbulence ahead.
In its latest
World Outlook report, Germany's largest bank cut its prediction for U.S. growth this year to 2.3 percent from the 3.1 percent it expected in March. And it lowered its projection for world growth to 3.3 percent from 3.5 percent.
The reduction in its U.S. forecast stems from the "weather-driven disappointment" in the first quarter, Deutsche Bank analysts write. U.S. GDP shrank 2.9 percent during that period.
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"Strong growth in consumer spending should continue to take the lead, buoyed by strengthening household balance sheets, low debt service ratios, and strong employment growth," the report states. "To be sure, some residual effects from the financial crisis remain, evidenced, for example, by still historically low levels of consumer confidence. But these effects are attenuating."
As for global financial markets, the recent lack of volatility will soon come to an end, Deutsche Bank projected. The CBOE Volatility Index (VIX), which measures expected volatility for the S&P 500 index, hit a seven-year low last week.
"The calm cannot last indefinitely, and the question at hand is whether the clouds on the horizon portend merely a late-summer squall or a potentially far more damaging tempest," the analysts explain.
"Our baseline forecast assumes the former — a manageable storm."
Deutsche Bank economists aren't the only ones trimming their U.S. growth forecast. After news of a paltry 0.2 percent increase in personal spending Thursday, Macroeconomic Advisers reduced its estimate for second-quarter growth to 3.2 percent from 3.5 percent previously,
The Wall Street Journal reports.
That would mean an average growth rate of just 0.2 percent for the first half of the year.
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