January 22, 2019

The IMF’s trimmed growth forecasts

The IMF’s latest World Economic Outlook (WEO) has trimmed its global growth forecast for this year from 3.7% to 3.5%, and added a number for 2020 (3.6%). That for the US for 2019 remains 2.5% since the outlook assumed three months ago that the impact of the fiscal stimulus was wearing off and that trade tensions were exacting a price. Among the downward revisions for 2019 of 20bps and more since October, we highlight the Eurozone, Japan and Russia. The Fund is adamant that risks are “tilted to the downside”, notably an escalation of the tensions.

                                                                                                                  

  • In a welcome development, the outlook strays a little from its familiar territory with the inclusion of “ongoing declines in trust of established institutions and political parties” among its watch-list of risks to look out for. This is Fund-speak for populism, which has reared its head in Brazil as well as most advanced economies.
  • The WEO scaled back its forecast for China in 2019 to 6.2% three months ago. It now highlights China’s vulnerability to a worsening of the trade spat with the US. The point is not specifically made but we suspect that China would be the greater net loser from such a worsening. The outlook also reminds us that negative newsflow about the Chinese economy can prompt a widespread, if short-lived, sell-off in global markets, as occurred in late 2015.
  • The price assumptions, based on the futures markets, for the Fund’s basket of three crude blends (including UK Brent) are now a decline of -14.4% this year to US$59.0/b and a modest fall of -0.4% for 2020 to US$58.7/b.
Trends in world output growth (% chg y/y)

January 22nd Graph

Sources: IMF, World Economic Outlook Update, January 2019; FBNQuest Capital Research
  • The WEO has trimmed its forecast growth in Nigeria this year to 2.0% from 2.3%, and penciled in 2.2% for 2020. We are more hopeful about the current year, and see growth of 2.9% on the back of a fiscal stimulus, a pick-up in oil production and selective private investment.