What’s Going On Here?

The International Monetary Fund (IMF) trimmed its growth forecasts for the global economy, but it also softened previous risk warnings.

What Does This Mean?

• The IMF now expects the world economy to grow 3.3% in 2020 and 3.4% in 2021, down from previous forecasts of 3.4% and 3.6%. Still, that’d represent a marked improvement on the slowest growth of 2.9% in 2019.
• The IMF also said in its outlook that it sees fewer negative risks to the global economy in 2020. Phew…

Why Should I Care?

The bigger picture: A balance of probabilities.

• Despite holding or pruning its growth forecasts for most of the world’s largest economies, the IMF lifted China’s presumptive pullulation as a result of the initial trade deal signed with the US.
• Together with signs that the slump in manufacturing is bottoming out and central banks’ cutting interest rates around the world, the IMF thinks this could be good for global growth.
• But it’s also got a long list of potential negatives to balance that out:
  • The risk of renewed trade tensions,
  • Heightened US-Iran conflict that could hit oil supply, social unrest, and weather-related disasters.

For markets: Interesting times.

• The IMF reckons that global growth would have been 0.5% slower in 2019 had central banks not cut interest rates, and that tailwind should extend to 2020 as well.
• Stronger economic growth based on cheap borrowing could lead to higher company profits – and lower interest rates help lift stock prices in other ways too, including (making their dividend payments relatively more attractive). 
• According to analysts at investment bank Goldman Sachs, the lower interest rates offered by bonds drove 90% of US stocks’ returns last year.

Content source: Finimize. (2020) Trim Pickings. Available from: https://www.finimize.com/wp/news/trim-pickings/ [Accessed 21 January, 2020]