Trade, market woes spur IMF global alert

Business | Bloomberg 10 Oct 2018

The International Monetary Fund said the world economy is plateauing as the lender cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.

On the eve of its annual meetings in Bali, Indonesia, the fund yesterday projected a global expansion of 3.7 percent this year and next, down from the 3.9 percent projected three months ago. It was the first downgrade since July 2016. The new outlook suggests fatigue is setting in and the overall performance masked divergence with mounting weakness in emerging markets from Brazil to Turkey.

Risks to the global outlook have risen in the last three months and tilt to the downside, the IMF said. Threats include a further inflaming of the trade war between the United States and countries including China, and a sharper-than-expected rise in interest rates, which would accelerate capital flight from emerging markets.

The IMF estimates global output could fall by more than 0.8 percent in 2020 and remain 0.4 percent below its trend line over the long term, in a scenario where US President Donal Trump follows through on all his threats, including global duties on cars. Output could fall by more than 1.6 percent in China and over 0.9 percent in the United States next year.

Meanwhile, ten-year Treasury yields hit a fresh seven-year high, on strong US data, a tighter-than-expected monetary trajectory, rising commodity prices and wage pressures. The value of the Barclays Multiverse Index, which captures investment-grade and high-yield securities around the world, fell by US$916 billion ($HK$7.18 trillion) last week.

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