The title of the International Monetary Fund’s latest outlook, “Subdued Demand,” emphasized the IMF’s continued disappointment with the global economy’s performance. In July, the fund lowered its 2016 growth forecast for the sixth time in two years, essentially abandoning expectations of a growth acceleration this year.
In fact, the summer update projected global growth slowing to just 3.1% in 2016, even below the prior year’s rate, to the weakest pace since the global recession in 2009. Advanced world growth forecasts slipped again in October, entirely due to disappointing first-half growth in the US. On a more positive note, the IMF lifted emerging market growth forecasts slightly on the back of further improving expectations in Russia and India.
The lack of improvement in global growth expectations reflects the prevailing demand concerns. The local currency MSCI All Country equity index was virtually unchanged in September. UK and Chinese stocks were up strongly, while Japan and Andean markets posted bigger losses. The US dollar lost ground against both the major developed and emerging market currencies. If currency markets are affected by the approaching US presidential election, early October’s strong rebound suggests a Clinton win would be positive for the dollar, possibly because it would make a Federal Reserve rate hike in December or January more likely.
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