Friday, 14 December, 2018


International Monetary Fund downgrades global growth outlook, places responsibility on US-China trade tensions

PM Imran Khan chairing the Punjab cabinet meeting. — PTI PM Imran Khan chairing the Punjab cabinet meeting. — PTI
Conrad Doyle | 10 October, 2018, 07:43

Despite the recent pullback, USA stocks are near record highs and that has raised concerns over valuations, especially of high-growth stocks, such as technology and the FAANG group.

But most will continue to experience growth, despite sometimes drastic declines in their currencies, the International Monetary Fund said in its Financial Stability Report, released at its annual meetings in Indonesia. The move is speculated to have been pushed by authorities in response to the IMF's calls for a weaker exchange rate. However, the RBI pegged India's growth projections at 7.5 per cent.

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 cut to its outlook was broad-based.

"Owing to these changes, our worldwide growth projections for both this year and next are downgraded to 3.7 per cent, 0.2 percentage point below our last assessments and the same rate achieved in 2017", the report said.

However, in a newspaper article, the country's former ambassador to the World Trade Organisation Manzoor Ahmad said China only accounted for 10 per cent or so of Pakistan's loan repayments.

In September, the US implemented another round of tariffs on $200 billion worth of Chinese goods, which were met with countermeasures out of Beijing on $60 billion worth of USA goods.

The IMF said the balance of risks was now tilted to the downside, with a higher likelihood that financial conditions will tighten further as interest rates normalize, hurting emerging markets further at a time when USA -led demand growth will start to slow as some tax cuts expire.

The IMF warned that China's growth even risked declining by a full percentage point by next year in the event of a "worse-case" scenario, involving further tariffs coupled with a collapse in confidence by businesses and markets.

The fund kept its forecast for growth in the Chinese economy unchanged at 6.6 percent this year.

Several emerging markets had their forecasts cut, including Argentina, Brazil, Iran and Turkey, reflecting factors including tighter credit. Core inflation, which excludes volatile items such as energy, will vary from country to country, it said. Pakistan's fiscal deficit was on target to hit 7.2 per cent of GDP in the fiscal year ending in June 2019, but the government has introduced measures to bring it closer to 5 per cent.

"I hope that the Pakistani market doesn't encounter the same weakness seen in the Turkish lira and Argentine peso over the past few months".

However, they said the International Monetary Fund would demand Pakistan reduce its non-development expenses to bring down the budget deficit.

Wednesday warned that global growth may be significantly harmed with further escalation of trade tension, which is a result of the uneven global economic recovery that has fuelled inward-looking policies and contributed to increased policy uncertainty. "Inclusive fiscal policies, educationalinvestments, and ensuring access to adequate health care can reduce inequality and are key priorities", he said.

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