Global Growth Forecasts Cut Again by IMF

Central banks can lift equities, but policies cannot move growth higher.

Bullion.Directory precious metals analysis 19 January, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

Just a week after the World Bank slashed its global growth forecast, the International Monetary Fund (IMF) has cut its forecast on global growth at the steepest rate in nearly three years. The IMF expects the world economies to expand 3.5 percent versus previous expectations of 3.8 percent.

China’s economy grows 7.3 percent, the slowest pace in 24 years.

Global growth is expected to decline almost everywhere except in the US, which is interesting considering how intertwined economies are. Emerging markets are forecasting to expand 4.3 percent opposed to the five percent previously expected. If the world slows down, the US will slow down. It’s that simple. Nevertheless, the IMF looks for the US to grow 3.6 percent in 2015, up from 3.1 percent.

“The world economy is facing strong and complex cross currents,” said Olivier Blanchard, chief economist at the IMF. “On the one hand, major economies are benefiting from the decline in the price of oil. On the other, in many parts of the world, lower long-run prospects adversely affect demand, resulting in a strong undertow,” Blanchard said.

However, that is an overly simplistic idea that lower oil prices are automatically great for economies. We has seen economies from oil-dependent countries take a hit. Russia, Norway, and the United Kingdom receive a big economic boost from higher oil, while Canada will likely see growth slowdown due to the collapse in crude prices.

The idea of a stronger consumer via low gas prices also proved not-so-positive in the US, after several Fed presidents said lower gas prices would be unambiguously good for consumer spending. However, that did not pan out. Gas prices have declined over 110 days straight in the US, a record. However, polls show no significant change in consumer spending. In fact, December’s retail sales figure – ex gas and autos – declined .3 percent, while economists forecasted a .6 percent jump. Core retail sales contracted one percent opposed to a .1 percent expectation. November’s figure was revised down to .1 percent from the initial .5 percent increase.

Benefits of low oil prices are not unambiguous, while growth prospects are quite ambiguous. 

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