Downgraded forecasts for global growth from the IMF are likely to cast a pall over proceedings as world political and business leaders face into this year's World Economic Forum which launches today in the exclusive Swiss Alpine resort at Davos. That said, the markets are shrugging off the news with the FTSE 100 adding 2.1% to 5,901.12 as the investors try to capitalise on last week's sell-off and bet on the Chinese government intevening to cushion the slowdown which, according to recent data, see's the world's second-largest economy growing at its weakest pace in 25 years.
In an update to its World Economic Outlook, the IMF (International Monetary Fund) estimated global growth at 3.4% this year and 3.6% in 2017; this is down from the down from the 3.8% predicted for 2017 only three months ago. The main takeaway is that a modest and uneven recovery is set to continue. Furthermore, IMF reckons the global economy only grew by 3.1% percent last year, which would make it the weakest pace since the 2009 recession. For the fifth straight year, growth in emerging markets and developing nations slowed.
It would appear therefore that downward revisions largely reflect a more bearish outlook for some countries in the emerging world since the October forecasts. Unsurprisingly, the updated forecasts reflect the still falling oil price, which has tanked further since the IMF updated its World Economic Outlook. The original forecasts worked on the assumption of oil at around $42 a barrel in 2016; substantially higher than Monday’s lows of about $28.
The downgraded forecasts reflect a confluence of bad news from a number of different regions.
In Brazil, the recession is proving to be more intractable than hitherto estimated and the forecasts for outlook for both Russian and Saudi Arabian growth has also been cut.
The UK can perhaps count itself lucky in that the IMF has left its forecasts for the UK unchanged at 2.2% in 2016 and 2017.
The US however was seen to be treading water and the Fund pared 0.2 points off its growth forecasts for the US in 2016 and 2017, noting that output in the world’s largest economy is predicted to expand by 2.5% in 2015 and rising to 2.6% in both 2016 and 2017.
Europe meanwhile got an upward revision – albeit starting from a lower base – and growth in 2016 is expected to print at 1.7% which represents an upward revision of 0.1% on October. At 1.7%, the 2017 forecast remain unchanged.