International Monetary Fund slashes global growth forecasts

Daniel Fowler
October 10, 2018

If projections are true, then India would regain the tag of fastest growing major economies of the world, crossing China with more than 0.7 percentage point in 2018 and an impressive 1.2 percentage point growth lead in 2019.

The IMF's latest report on world financial stability, released Wednesday, said global growth could be at risk if emerging markets deteriorate further or trade tensions escalate.

The global organisation warned a full-blown trade war between the U.S. and China could have wider implications for the financial growth around the world. Meanwhile, market volatility appears too low, and spreads on high-yield corporate bonds are close to historical lows, according to the fund.

"If you have the world's two largest economies at odds, that is a situation in which everyone, everyone is going to suffer", International Monetary Fund chief economist Maurice Obstfeld said Tuesday.

The United States has imposed tariffs on US$200 billion (S$277 billion) worth of imports from China, attracting retaliatory tariffs from China in return.

The IMF expects growth in Russian Federation at 1.7 percent this year and 1.8 percent next year, it said in an update to its World Economic Outlook on Tuesday.

China's growth is still expected to be more than 6% next year, but the IMF's chief economist Maurice Obstfeld warned Beijing to concentrate on quality and sustainability of growth, not quantity of growth.

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This forecast is a normalization from the current inflation numbers-which the Philippine Statistics Authority (PSA) recently reported was at 6.7 percent in September alone.

The cut its 2019 United States growth forecast to 2.5 percent from 2.7 percent previously, while it reduced China's 2019 growth forecast to 6.2 percent from 6.4 percent. Stocks rose in Taiwan and Thailand but fell in Indonesia and Singapore. "Poverty will lead to an increasing crime rate and the tall claims of 10 million jobs and five million house would not materialize", Wizarat warned.

Maurice Obstfeld said the International Monetary Fund does not see a generalised pullback from emerging markets, nor contagion that will spill over to those emerging economies which have stronger economies and have thus far avoided major outflows, such as those in Asia and some oil exporting countries.

"But there is no denying that the susceptibility to large global shocks has risen", Obstfeld said. The report said that aggregate growth in the emerging market and developing economy group stabilised in the first half of 2018. Britain's FTSE 100 dropped 0.4 per cent to 7,201.

"Russia's inflation, expected to average 2.8 percent in 2018, is below the target of 4 percent, driven by moderately tight monetary policy".

Most of the "meagre gains" from growth have gone to the well-off, fuelling support for protectionism and anti-establishment leaders, said Mr Obstfeld.

ANALYST'S TAKE: "Renewed tension between the U.S. and China has capped risk sentiment as a range of issues from trade to diplomacy are likely to challenge China-U.S. relationship", Zhu Huani of Mizuho Bank said in a commentary.

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