IMF Downplays Trump Stimulus Effect; Slashes Saudi, Mexico Growth In Latest World Economic Outlook

As the world's elite gather in Davos to decide for the minions what the world should look like, The IMF has taken a far dimmer view of global (and by that we mean Trumpian) economic growth than markets appear to be. In addition to slashing Brazilian, Mexican, and Saudi Arabian economic growth forecasts, Lagarde's lackeys are taking a cautious stance toward the policies of U.S. President-elect Donald Trump, who takes office this week, assuming only a modest boost to the U.S. economy from his promise of fiscal stimulus.

As Bloomberg reports, The IMF maintained its forecast for global growth in 2017 of 3.4 percent, the Washington-based organization said Monday in a quarterly update to its World Economic Outlook. Expansion for 2018 is forecast at 3.6 percent, also unchanged from the fund’s previous forecast in October.

After a lackluster outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018, especially in emerging market and developing economies. However, there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming U.S. administration and its global ramifications. The assumptions underpinning the forecast should be more specific by the time of the April 2017 World Economic Outlook, as more clarity emerges on U.S. policies and their implications for the global economy.

 

With these caveats, aggregate growth estimates and projections for 2016–18 remain unchanged relative to the October 2016 World Economic Outlook. The outlook for advanced economies has improved for 2017–18, reflecting somewhat stronger activity in the second half of 2016 as well as a projected fiscal stimulus in the United States. Growth prospects have marginally worsened for emerging market and developing economies, where financial conditions have generally tightened. Near-term growth prospects were revised up for China, due to expected policy stimulus, but were revised down for a number of other large economies—most notably India, Brazil, and Mexico.

 

While the balance of risks is viewed as being to the downside, there are also upside risks to near-term growth. Specifically, global activity could accelerate more strongly if policy stimulus turns out to be larger than currently projected in the United States or China. Notable negative risks to activity include a possible shift toward inward-looking policy platforms and protectionism, a sharper than expected tightening in global financial conditions that could interact with balance sheet weaknesses in parts of the euro area and in some emerging market economies, increased geopolitical tensions, and a more severe slowdown in China.

In a welcome move to Brexiters the IMF hiked its outlook on UK growth, saying "domestic demand held up better than expected in the aftermath of the Brexit vote", but warned that while it was upgrading its outlook on China GDP, it warned that China's "sugar-rush" growth presents risks to future stability.

The growth forecast for 2017 was revised up for China (to 6.5 percent, 0.3 percentage point above the October forecast) on expectations of continued policy support. However, continued reliance on policy stimulus measures, with rapid expansion of credit and slow progress in addressing corporate debt, especially in hardening the budget constraints of state-owned enterprises, raises the risk of a sharper slowdown or a disruptive adjustment. These risks can be exacerbated by capital outflow pressures, especially in a more unsettled external environment.

The full breakdown:


The IMF further notes that the impact of a Trump administration is one of the biggest unknowns facing the global economy.

While Trump has promised to cut taxes and boost infrastructure spending, he’s also threatened to impose tariffs on trade partners such as China and Mexico. Such punitive measures may sap growth if they provoke retaliation. Trump’s policy priorities will become clearer after his inauguration on Jan. 20 in Washington.

 

The high degree of uncertainty about what’s in store for U.S. economic policy presents a “wider than usual range of upside and down risk factors,” IMF Chief Economist Maurice Obstfeld said in remarks prepared for delivery Monday.

 

“In light of the U.S. economy’s momentum coming into 2017 and the likely shift in policy mix, we have moderately raised our two-year projections for U.S. growth,” he said. “However, the specifics of future fiscal legislation remain unclear, as do the degree of net increase in government spending and the resulting impacts on aggregate demand, potential output, the Federal deficit, and the dollar.”

 

The IMF bumped up its forecast for U.S. growth by only 0.1 percentage point this year and 0.4 points for 2018. The U.S. economy will expand by 2.3 percent in 2017 before firming to a 2.5 percent rate in 2018, according to the update.

 

The Federal Reserve is now expected to raise rates at a less gradual pace than IMF staff projected in October, the fund said, without specifying the number of rate hikes it anticipates this year.

It remains less optimistic on EM nations such as Brazil, Saudi Arabia, and Mexico, however:

  • *IMF CUTS BRAZIL 2017 GROWTH OUTLOOK TO 0.2% FROM 0.5%

The International Monetary Fund more than halved its 2017 growth outlook for Brazil, citing weaker-than-expected activity in Latin America’s largest economy.

 

Brazil will grow 0.2 percent this year, compared with a prior forecast of 0.5 percent, the IMF said in an update of its World Economic Outlook. The fund is now more pessimistic than all but three of the 39 analysts Bloomberg surveyed, whose median forecast is 0.8 percent.

 

Like most economists, the IMF is tempering its optimism about the government of President Michel Temer. The fund had forecast stagnation for Brazil early last year, but boosted that outlook to a half-point expansion soon after Temer assumed Brazil’s presidency in May.

  • *IMF CUTS SAUDI ARABIA 2017 GDP GROWTH FORECAST TO 0.4% FROM 2%

The International Monetary Fund cut its growth outlook for Saudi Arabia on lower oil production, underscoring the challenges facing the kingdom as it seeks to overhaul its economy.

 

Gross domestic product will expand 0.4 percent in 2017, the lender said in its World Economic Outlook report update on Monday, citing the impact of the recent deal by the Organization of the Petroleum Exporting Countries to reduce output. It compares with the fund’s October prediction of 2 percent, and a median estimate of 0.9 percent in a Bloomberg survey.

 

The sharply lower forecast comes as Saudi Arabia seeks to build investor confidence in its long-term strategy to reduce dependence on crude and boost non-oil sectors of its economy, while trying to plug one of the Middle East’s biggest budget deficits. The kingdom is planning to borrow as much as $15 billion this year on international debt markets to help fund its spending plans, following last year’s $17.5 billion sovereign bond sale.

  • *IMF CUTS MEXICO 2017 GROWTH OUTLOOK TO 1.7% FROM 2.3%

Citing “U.S.-related uncertainty,” the IMF slashed its projection for Mexico’s growth to 1.7 percent this year, down 0.6 percentage point from the October forecast.

 

Trump has promised to end or renegotiate the North American Free Trade Agreement between the U.S., Canada and Mexico that’s been key to Mexico becoming a manufacturing powerhouse over the past two decades.

Ironically, given the establishment's devastating forecast pre-Brexit, The IMF has increased its growth outlook for UK... (via The FT)

The International Monetary Fund has upgraded its UK growth forecast for the second time after the Brexit vote as it predicted global economic growth will pick up from its slowest pace since the aftermath of the financial crisis.

 

In its latest set of economic forecasts, the Washington-based IMF said it now expects the British economy to expand by 1.5 per cent this year from an earlier projection of 1.1 per cent – the biggest single upgrade of any major economy in its January update for 2017.

 

Growth in 2016 was also nudged up to 2 per cent from an October projection of 1.8 per cent but expansion in 2018 would come in lower at 1.4 per cent from an earlier forecast of 1.8 per cent, said the fund.

 

It is the latest immediate growth upgrade for the UK since the IMF warned a decision to leave the EU would wreak “severe” damage to Britain’s growth prospects before the June referendum.

 

The pre-referendum warnings came in for severe criticism from pro-Brexit campaigners, with the fund defending itself by saying it would have been “malpractice” not to have considered worst-case scenarios from a “leave” vote.

 

The UK economy has broadly defied warnings to continue growing at a healthy clip since the June vote, accelerating to a 0.6 per cent pace in the third quarter. The latest raft of business surveys also point to robust growth at the end of the year, helped along by buoyant consumer spending.

 

“Domestic demand [has] held up better than expected in the aftermath of the Brexit vote”, said the IMF.

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Full IMF Report below:

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