IMF CUTS WORLD GROWTH FORECAST….AGAIN | 20/07/16
This article is originally referred from IronFX Fundamental Analysis.
• IMF cuts world growth forecast….again The International Monetary Fund (IMF) revised down its forecasts for global economic growth this year for the 3rd time, as the unexpected UK-EU divorce unleashed a new wave of uncertainty amid an already-fragile business and consumer confidence. According to the Fund’s World Economic Outlook update, the “Brexit” vote increased economic, political and institutional uncertainty, which is expected to have negative macroeconomic consequences, especially in advanced European economies. As a result, the global growth for this year was cut again. Had not been the “Brexit”, the Fund said that the global growth forecast would have been left broadly unchanged and even risen slightly for 2017. As for the UK economy, the Fund now expects it to grow 1.7% vs 1.9% previously, and the nation’s growth will slow to 1.3% in 2017 vs 2.2% previously projected.
• All the forecasts were contingent on the assumptions that the referendum uncertainty would gradually fade out, and that the EU and UK would manage to avoid a large increase in economic barriers. Even though the real effects of the “Brexit” vote are still largely unknown until the negotiations yet to begin, the risks to the IMF’s forecasts are to the downside. If the financial market conditions deteriorate and consumer confidence is weaker than currently assumed, this will result in a further slowdown of global growth. In this scenario, we could expect the demand for the safe haven assets to remain intact and a sell-off of pro-risk currencies to be triggered.
• Turkish lira under renewed selling pressure The Turkish lira plunged on Tuesday on reports that the country’s government has dismissed numerous education staff. The widening purge of Turkish institutions following the failed coup attempt over the weekend, has probably shaken investors’ confidence and increased fears of political instability. Given that the political disorder is still undergoing and there are no clear signs of an end, the lira could stay under selling pressure at least until the overall turmoil settles down.
• Today’s highlights: The European calendar is very light, as we mostly get second-tier indicators. The most important release we get is the UK employment report for May. The unemployment rate is expected to have remained unchanged at 5.0%, while average weekly earnings are forecast to have accelerated to 2.3% yoy from 2.0% yoy in May. Given that the nation’s CPI rate remained unchanged at +0.3% yoy from April to May, this will point to accelerating real earning, something that under normal circumstances would benefit the pound. However, as this report concerns the pre-referendum era, we believe that it is possible to have limited impact on sterling as the CPI did on Tuesday. As we already noted, UK investors are on the edge of their seats for the preliminary PMI data for July, due out on Friday. These data will provide the first signs on whether and how much the “Brexit” vote has affected the UK economy.
• From Eurozone, we get the preliminary consumer confidence for July. This report would give evidence on how the UK’s decision to leave the EU might have affected sentiment among European consumers. The index is expected to have decline to -8.00 from -7.30, previously, hinting slower growth in consumer spending over the coming months. The bloc’s current account for May and Germany’s PPI data for June are also to be released.
• No speakers are scheduled throughout the day.
Original Source: IronFX Fundamental Analysis