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Markets move uphill in a downhill world

Published Tuesday, October 6th, 2015

October is well known for delivering both weather and financial dramas. It has begun ominously with a disaster zone declared in the Cote D’Azur and state of emergency in South Carolina both caused by heavy rain and flooding. The two events will give further impetus to the climate change talks to be held in Paris at the end of the year. As far as economic data is concerned it was all downhill.

It is difficult to believe that anyone could be more negative than the IMF but the Brookings Institution has succeeded in its commentary attached to the release of the latest Brookings Institution-FT tracking index. Weak economic data in emerging markets has created “a dangerous combination of divergent growth patterns, deficient demand and deflationary risks”. Emerging markets are exhibiting extreme weakness warns Brookings and are now a much more important component of global growth than in the past, with growth rates above the developed world. As a result global growth risks slipping below 3%.

Brookings conclude that “the impotence of monetary policy in boosting growth and staving off deflationary pressures has become painfully apparent” with too many countries “resorting to the same limited playbook”. On cue the World Bank has cut its growth forecasts for East Asia and Pacific from 6 to 5.7% for this year with China at 6.9% falling to 6.7% next year. It has cut the forecast for developing East Asia excluding China by 0.6% to 4.4% this year and to 4.7% next. On the upside the Bank says that the number of people living in extreme poverty (ie less than $1.90 per day) has fallen by 200 million since 2012 and should break below 10% of the world’s population for the first time ever by the end of this year.

to read the rest of the report, please click here

Posted by David Hufton