What’s going on?

• The International Monetary Fund (IMF) cut its forecast for China’s economic growth
• The rest of the world is still waiting nervously…

What does this mean?

The world: The World Bank lowered its forecasts for global economic growth before that – citing the key reason is the ongoing trade war between the US and China. China comprises 1/3 of global growth, so a slowing Chinese economy reduces the world’s economic speed.

China:

• The IMF’s lowered forecast of 6.2% puts it right in that ballpark that China thinks its economy will grow (6% – 6.5%, its lowest annual rate since 1990).
• It’s still below estimates made by other economists – who perhaps expect a larger impact from the government’s growth-boosting measures like $300 billion worth of tax cuts.

Why should I care?

For markets: Central banks are stepping in.

• Australia’s central bank cut interest rates to record lows because the country’s been experiencing sluggish growth.

Lower rates should encourage lending and spending, stimulating economic growth.

• The Federal Reserve’s chair said the bank would do the necessary to sustain American growth.

Powell said that near-zero rates and asset purchases (used during the crisis that took the balance sheet to more than $4.5 trillion) — are likely to be deployed again.

• The European Central Bank is likely to announce further details of its growth-boosting plan to offer low-cost long-term loans to eurozone banks – in the hope of encouraging those banks to lend to companies that’ll then spend.

The bigger picture: Lower interest rates miss the applause.

• The Fed said in March that it wouldn’t raise interest rates in 2019 – but simultaneously lowered its growth projections. Investors may have worried that any potential benefits (e.g: companies borrowing and spending more) would be lost.
• But a potential rate cut alongside unchanged economic growth forecasts might soon be warmly welcomed by investors.

Content source: Finimize. (2019) Slow And Slower. Available from: https://www.finimize.com/wp/news/slow-and-slower/ [Accessed 10 June 2019]