International Monetary Fund Slashes Global Growth Outlook

Alan Penny

9 April 2019

3 min read

During the trading session on Tuesday, the International Monetary Fund cut the outlook for global growth to 3.3% this year, down from the original that the IMF released in just January. The fund is showing its weakest estimate of global growth since the end of the financial crisis just over a decade ago, which of course is a very negative sign to say the least. If there are concerns about the global growth, then obviously it has a negative effect on equity markets, commodity markets, and the like. In fact, we had initially seen a very strong move to the downside in US stock markets as the announcement was released early during the New York session.

Are things getting worse?

One of the biggest questions that traders have been asking their selves over the last several months is whether or not global growth is slowing down? It certainly is in certain parts of the world but there is hope that the United States and China can get it together. The reality of course is that we don’t really know what’s about to happen as trade talks are starting to look a little bit more taxed than originally thought. If that’s going to be the case that could be yet another negative to add to the outlook and would have traders scrambling for cover in places like the S&P 500, shorting the market or at the very least closing out their positions.

The question now is whether or not stimulus that we find in places like China will work on. If it does not work, that could be a very negative sign as China is directly involved in about 30% of the world’s economic trading. Beyond that, we need to pay attention to whether or not the US slows down, because if it does that could be the final Domino.

Central banks

Interestingly, central banks around the world have been rather loose as of late, but what’s been even more telling is the fact that the Federal Reserve has stepped away from its tight monetary policy. After all, the Federal Reserve was considered to be the most hawkish of central banks in the developed world, and the fact that they have stepped away suggests that there could be something even more heinous at foot. If we are about to see some type of global recession as the alarmists have been saying, this can lead to a major selling of risk appetite assets. Central banks providing liquidity is a measure to bring up asset prices, so the question now is whether or not they can pull off another major save like they did back in 2008.

Expect extreme volatility

I think the one thing that you can see and perhaps even count on in the market is a lot of volatility. Quite frankly nobody really knows what’s about to happen next and of course we have a lot of concerns when it comes to various economies around the world, including the European Union, obviously the United Kingdom as the Brexit is still being debated, and the United States seems to be slowing just a bit. China is a world of problems just waiting to flareup as far as debt is concerned, so the one thing that you can take away from this is that markets will continue to be very jittery.

Written By
Alan Penny

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