Tuesday, 11 December, 2018

World stocks tumble after International Monetary Fund slashes economic growth forecast

Finance Minister Asad Umar speaks in a video message. — DawnNewsTV Finance Minister Asad Umar speaks in a video message. — DawnNewsTV
Priscilla Morrison | 10 October, 2018, 15:53

It kept the 7.3 per cent growth projection for this year made in July. Not only have some downside risks that the WEO identified been realised, the likelihood of further negative shocks to our growth forecast has risen.

It said the government would need to do more to retrain or relocate workers in industries that are "likely to be more affected by higher trade barriers after Brexit".

An escalation in global trade tensions, together with rising geopolitical risks and policy uncertainty in major economies, could trigger a broad-based correction in global capital markets and cause a sharp tightening of global financial conditions, the International Monetary Fund (IMF) warned on Wednesday.

According to experts, such rise in the U.S. dollar rate against Pakistani rupee is an impact of government's decision to approach the International Monetary Fund (IMF) in order to handle the financial crisis that Pakistan is facing.

The financial market volatility will likely continue next year, because the US Federal Reserve, after raising the federal funds rate by 25 basis points in its September 26 meeting, nonetheless signaled another rate hike by the end of this year and maintained its projection for three rate hikes in 2019. Both the 2018 and 2019 projections were lower than actual 2017 GDP of 6.7 percent.

The UK economy is expected to expand by 1.4% this year and 1.5% in 2019.

"Since mid-April, rising United States interest rates and a stronger U.S. dollar - coupled with intensified trade tensions - have triggered a reversal in portfolio flows, an increase in borrowing costs, and a weakening in local currencies in some emerging markets", the report noted.

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According to the National Bureau of Statistics (NBS), the inflation rate in Nigeria rose to 11.23% year-on-year in August 2018, which is 0.09% higher than the recorded rate in July (11.14%).

"Nigeria's growth, 1.9 percent this year; 2.3 next year".

The global crisis lender, which in Indonesia this week is staging its annual meetings with the World Bank, cut its outlook for global GDP on Monday by two tenths to 3.7 percent through next year. The 2018 growth projection for the region was unchanged at 6.5 percent which was also the actual growth number in 2017. Emerging Asia includes ASEAN 5 countries plus China and India.

United Kingdom growth has been drastically cut in the aftermath of the Brexit vote; uncertainties surrounding the country's divorce from the European Union have stymied investment and seen part of its key financial sector relocate to the continent. It said core inflation (excluding all food and energy items) in India had risen to about 6 per cent as a result of a narrowing output gap and pass-through effects from higher energy prices and exchange rate depreciation. "As the government is expecting inflows from friendly countries, Saudi Arabia and China, and inflow of investment in the CPEC project, the country may achieve 5 percent growth rate", Dr. Bilal Ahmed, an economic analyst, said.

What are the risks to global growth?

The body now expects the USA economy to grow at a rate of 2.5 percent in 2019, a 0.2 percentage point decline from its April estimates.

The Outlook said the global economy is expected to grow at 3.7 percent this year and next year - down 0.2 percentage points from an earlier forecast, as the trade war started to hit economic activity worldwide.

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