The IMF’s more cautious world view

The IMF’s latest World Economic Outlook (WEO) has trimmed its global growth forecasts for this year and next from 3.9% to 3.7%. That for the US for 2019 has been reduced from 2.7% to 2.5%: while the outlook assumes a large fiscal stimulus, it attaches greater weight to trade tensions than three months ago. Among the downward revisions of 20bps and more since July, we highlight the Eurozone and Brazil (2018), China (2019) and South Africa (both years). Overall, the downside risks have risen and the potential for upside surprises has narrowed.

  • Faced with the topical conundrum as to why real wage growth in the US has been muted when the unemployment rate is at its lowest this century, the WEO points to weak productivity growth and the possibility that there is greater slack than indicated by the headline data.
  • The normalization of US monetary policy is set to continue. This will bring, the Fund argues, some rebalancing of global portfolios but the sovereign bond spreads in most EMs will remain “contained”.
  • The price assumptions, based on the futures markets, for the Fund’s basket of three crude blends (including UK Brent) are now an increase of 31.4% this year to US$69.4/b and a decline of 0.9% for 2019 to US$68.8/b.
  • The Fund argues that these price gains will “dissipate” on account of rising US shale production and OPEC+ supply. In contrast, we would stress pipeline constraints on shale output and OPEC+ discipline.
Trends in world output growth (% chg y/y)

Sources: IMF, World Economic Outlook, October 2018; FBNQuest Capital Research
  • The WEO has trimmed forecast growth in Nigeria this year to 1.9% from 2.1% three months ago. Unlike “many energy exporters” in the Fund’s parlance, its growth prospects have not been lifted by higher oil prices. Our own projections see growth at 2.2% and 2.5% this year and next.



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