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IMF warns of a loss of growth momentum

Published Wednesday, April 6th, 2016

If you thought the global economy was looking in better shape there is always the IMF and Christine Lagarde available to put you down and knock your confidence. Speaking yesterday before next week’s IMF Spring Meeting in Washington she told us that “the global outlook has weakened further over the last six months”. We are therefore warned to expect a further reduction in the IMF’s global growth forecasts. You need a long memory to recall when the IMF last increased their forecast.

Global growth she says “remains too slow, too fragile and risks to its durability are increasing“. The risks of being trapped in “a new mediocre” are rising she warns. It looks as though Miss Lagarde and Mrs Yellen must have had a chat before the last Fed meeting which would go a long way to explaining the Fed President’s concerns over the international outlook and growing caution over an interest rate increase. The head of the IMF is concerned about the slowdown in global trade, rising financial stability risks and a retreat into protectionism.

And just when you thought that a China hard landing may be off the table the IMF focuses in its Financial Stability Report on China and emerging market spill overs which it says will increase and are already responsible for a third of price movements in advanced equity and foreign exchange markets. Currently when China sneezes the rest of the world catches a varying degree of colds. In future when China sneezes the rest of the world will catch a flu or even pneumonia. Christine Lagarde’s conclusion is that there “has been a loss of growth momentum” and we should be on alert rather than be alarmed. Given that the growth rate is already mediocre more appropriate advice would be to be alarmed but don’t panic yet, words she would never dare utter.

to read the rest of the report, please click here

Posted by David Hufton