IMF Cuts Global Growth For The Fourth Time In 12 Months... But That's Not The Biggest Problem

Moments ago the IMF did what it does best: it just cut its forecast for global growth yet again. Specifically, it said that "global growth for 2015 is projected at 3.1 percent, 0.3 percentage point lower than in 2014, and 0.2 percentage point below the forecasts in the July 2015 World Economic Outlook (WEO) Update. Prospects across the main countries and regions remain uneven. Relative to last year, the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries."

What is surprising about this particular estimate is that the IMF did not cut any of its core geographic regions: both Europe and China saw their 2015P GDP forecast remain unchanged (at 1.5% and 6.8%), while the US was raised modestly from 2.5% to 2.6% (it will soon revise this lower again). As a result, the driver for the cut in global growth was to a lesser extent Japan, which was revised from 0.8% to 0.6%, but it was the EM and oil exporters that saw the biggest cuts, with Russia (-0.4%), Brazil (-1.5%) and Canada (-0.5%) cut the most.

The culprit, indirectly, was once again China. To wit:

For most emerging market economies, external conditions are becoming more difficult. While currency depreciation will help net exports, the “pull” from advanced economies will be somewhat more modest than previously forecast, given their weak recovery and moderate prospects for medium-term growth. Capital flows to emerging markets have slowed in recent quarters, and the liftoff of U.S. policy rates from the zero lower bound is likely to be associated with some tightening of external financial conditions. And while the growth slowdown in China is so far in line with forecasts, its cross-border repercussions appear greater than previously envisaged. This is reflected in weakening commodity prices (especially those for metals) and reduced exports to China (particularly in some east Asian economies).

But the real punchline is that, as expected, the IMF which saw global growth at 3.8% one year ago, has cut its forecast 4 times in the past 4 quarters, and a 3.1% this is the lowest global growth rate going back to the financial crisis.


And while a Chinese growth cut is just a matter of time, even if the trajectory is all too clear...


... the biggest problem had nothing to do with any particular country's GDP growth, but with what has emerged over the past year as the biggest threat to global growth: the lack of trade. Sure enough, the IMF just cut its 2015P trade forecast from 4.1% to 3.2%, and putting the collapse in global trade in context, back in 2011 the IMF saw 6.9% in global growth. This number is now down nearly 60% 4 years later to a paltry 3.1% and sliding fast.

Why is this a problem? Because while central banks can reflate asset values all they want, they can't print trade, and a global world needs trade more than anything to grow.

Source: IMF