Three months ago, we noted that if there’s anything the IMF is good at, it’s cutting global growth forecasts, something the Fund did for the fourth time in twelve months in October.
Of course the IMF wasn’t alone in adopting an increasingly dour outlook for global growth and trade. The WTO, the ADB, and the OECD all suggested that worldwide commerce was effectively grinding to a halt last year. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should,” WTO chief economist Robert Koopman remarked, late last summer.
Well, things haven’t gotten any better since then. The downturn in key emerging markets like Brazil and Russia has intensified and China’s hard landing is upon us (remember, even if you believe the NBS’ “official” GDP data, China’s deflator has now been negative in three of the last four quarters which certainly suggests the books are being cooked, so to speak). Meanwhile, there are worrying signs that America’s double-adjusted “recovery” has stalled out altogether as freight volumes fell Y/Y for the first time in three years in November, a month in which Class 8 truck sales collapsed 59% Y/Y and 36% M/M.
And then there is of the course the Baltic Dry which is, well, flatlining, having fallen below 400 last week.
Now, in the latest sign that sluggish global growth and trade have become endemic and structural rather than fleeting and cyclical, the IMF has once again cut its global growth forecasts, citing a year of “great challenges.”
“This coming year is going to be a year of great challenges and policymakers should be thinking about short-term resilience and the ways they can bolster it, but also about the longer-term growth prospects,” Maurice Obstfeld, IMF Economic Counsellor and Director of Research, said in the Fund's latest world economic outlook.
The strong dollar is weighing on the US manufacturing sector, while emerging markets are “now confronting a new reality of lower growth,” the Fund says, adding that “the risks are tilted to the downside.”
What risks, you ask? These risks:
- A sharper-than-expected slowdown in China, which could bring more international spillovers through trade, commodity prices, and waning confidence.
- A further appreciation of the dollar and tighter global financing conditions which could raise vulnerabilities in emerging markets, possibly creating adverse effects on corporate balance sheets and raising funding challenges for those with high dollar exposures.
- A sudden bout of global risk aversion, regardless of the trigger, could lead to sharp further depreciations and possible financial strains in vulnerable emerging market economies.
- An escalation of ongoing geopolitical tensions in a number of regions, which could affect confidence and disrupt global trade, financial flows, and tourism. New economic or political shocks in countries currently in economic distress which could also derail the projected pickup in activity.
- Commodity markets pose two-sided risks. On the downside, further declines in commodity prices would worsen the outlook for already-fragile commodity producers, and widening yields on energy sector debt threaten a broader tightening of credit conditions.
- On the upside, the recent decline in oil prices may provide a stronger boost to demand in oil importers, including through consumers’ possible perception that prices will remain lower for longer.
“All in all, there is a lot of uncertainty out there, and I think that contributes to the volatility,” said Obstfeld. “We may be in for a bumpy ride this year, especially in the emerging and developing world."
Yes, we "may", especially considering the fact that all of the "risks" the IMF outlines aren't really "risks" but rather realities. That is, we're already seeing a sharper-than-expected slowdown in China, a soaring dollar, a sudden bout of global risk aversion, and escalating geopolitical tensions.
In any event, here are the latest projections from the Fund which include a downward revision of 0.2% for both the US and the world, and a sharply lower outlook for depression-stricken Brazil.
And here's a slick infographic the Fund put together for those who aren't inclined to read their reports:
And here's the updated hockey stick graph which depicts the extent to which the Fund has become a serial downward-revisor:
The bottom line is the same as it's been for quite some time: expect these revisions to continue until either the entire world slips into recession, or central bankers learn to print trade.