IMF Maintains 2017 Growth Outlook

Daily Analysis - 17/01/2017

Washington-Based Institution Expects a Pickup in Economic Activity


In its latest report, the International Monetary Fund reaffirmed its global GDP growth forecasts for 2017 and 2018, matching forecasts last released in October.  While certain emerging markets had their growth expectations slashed for the upcoming year, overall, the main factor that the IMF was unable to quantify was the projected impact of possible fiscal stimulus across the globe.

IMF Views Balance of Risks to the Downside

Although the latest World Economic Outlook from the International Monetary Fund stressed that global growth was expected to be higher in 2017 and 2018 at 3.40% and 3.60% respectively compared to 2016, many emerging markets saw their growth forecasts revised lower.  The notable downgrades were for India, Brazil, and Mexico as worsening financial conditions threaten to derail economic expansion.

However, as the report highlighted, the big unknown remains the potential impact of Donald Trump’s proposed stimulus measures, with the IMF downplaying the likely effect of any such activities.  Although they roundly anticipated fiscal spending to be a driver of activity in the coming year, there were some surprises like the upgraded UK outlook despite the upcoming Brexit announcement.  While the report had minimal impact on financial markets, the Peso slumped on Monday, with USDMXN rising as high as 21.7404 before retracing most losses in early Tuesday trade.


Saudi Deal Comments Adds Volatility to Oil Prices

Oil prices briefly dipped on Monday before recovering following comments from Saudi Energy Minister Khalid Al-Falih.  While he was quick to commend OPEC on reaching its output targets alongside the other non-OPEC nations participating in the deal, he did not expect to extend the deal past the initial six months agreed upon.  With 1.800 million barrels cut from global supply from these nations, Al-Falih estimates that the ongoing 300 million barrels in storage will be reduced completely within 6-months.

Furthermore, he expects demand growth during the second half of the year to support a return to normal output levels from participating deal members.  Nevertheless, resurgent American oil production and an end to output cuts could very well sink prices once more. The announcement sent prices lower at the outset before recovering late in the session.


Trump Lashes Out at Germany

In an unsurprising move that matches earlier efforts with American automakers, US President-elect Donald Trump has plunged headlong into a scuffle with Germany, threatening automakers with 35.00% tariffs unless they opt to move production to the United States.  So far, other US automakers have chosen to forgo plans to expand operations in Mexico in favor of establishing more facilities in the United States, with even General Motors on the verge of announcing a brand new $1 billion investment in US production.

However, the impact on German automakers was significant despite their ongoing light vehicle production efforts currently underway in the United States.  The Merkel government was quick to respond to the threats, but so far, no punitive actions have been taken.  Despite losses in shares of automakers, the DAX 30 only closed modestly lower on Monday before extending the retreat in early Tuesday trade.


Theresa May’s Speech Leaked

Ahead of the planned speech for later in the day, UK Prime Minister Theresa May’s main talking points outlining the government’s plans for Brexit were leaked overnight.  While most of the major issues were corroborated by comments over the weekend from important UK policymakers, the key takeaway is that the UK will seek to break away from the European Union in entirety.  This would mean reestablishing sovereignty, bringing back legislation from the European Court of Justice to the UK Parliament, and furthermore, reasserting control over the nation’s borders.

Although the speech highlights the goal of a constructive partnership with the European Union, any deal will also be far reaching in that it will give the UK the power to negotiate new free trade agreements that benefit the nation.  Although the Pound closed lower against the Euro on Monday, Sterling is mounting a comeback, after rebounding from Monday’s lows.


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