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IMF trims 2020 global growth forecast to 3.3% from 3.4% previously in October

IMF attributes the slight downwards revision to a sharper-than-expected anticipated slowdown in India

  • Sees tentative signs that manufacturing and global trade are bottoming out
  • That is partially due to the US-China trade deal
  • Sees risks less tilted to the downside than in October
  • US-Iran tensions, social unrest and a flare-up in trade tensions are key concerns
  • 2021 global growth forecast seen at 3.4% (3.6% previously)
  • US 2020 growth forecast seen at 2.0% (2.1% previously)
  • China 2020 growth forecast seen at 6.0% (5.8% previously)
  • Euro area 2020 growth forecast seen at 1.3% (1.4% previously)
  • UK 2020 growth forecast seen at 1.4% (unchanged)
  • India 2020 growth forecast seen at 5.8% (7.0% previously)

(more…)

Ahead of the FOMC minutes this week, a forecast of an October rate cut

UBS are citing the US slowdown to potentially arrive sooner than expected

  • Which, they say, opens the door to a Fed funds rate cut in October.
(Federal Open Market Committee meeting is October 29 and 30)
Citing trade tension with China –  a substantial shock to the economy – tariffs causing a slump in private demand
  • tarfifs weakening employment in manufacturing, retail
Following that the bank expects further cuts in:
  • January, March and June 2020
  • And also say that due to the run of recent data there is risk is to the downside for the Fed to cut more.

Marc Faber Discusses Chinese Economic Cooling Off, Sees Day Of Reckoning Delayed

Nothing notably new here from the man who has called for a Chinese crash in as little as 12 months. Now that the Chinese PMI came at the lowest level in 17 months (in line with the drop in the US ISM but completely the opposite of Europe’s PMI as everyone makes up their own data on the fly now with no rhyme or reason), Faber seems to have mellowed out a little on the Chinese end-play. He now sees the China government stepping in and prevent a collapse of the economy when needed, as the economy has dropped from a near 12% GDP growth to a collapse in the PMI in the span of a few months, even as Chinese banks lent another quarter trillion renminbi billion in July, and issued who knows how many hundreds of billions in CDOs to keep the ponzi afloat.

From Bloomberg TV:

On the cooling of China’s economy:

“I mean I’ve been arguing this year that the economy would inevitably slow down, because the impact of the stimulus would diminish. But having said that, the economy hasn’t crashed yet. It could still crash. But on the other hand, if you look at the performance of equities worldwide, it seems that the worse the economic news is, that the more the markets go up, because the market participants expect further easing measures, and maybe further stimulus. So altogether I would say it’s not going to be a disaster for stock investors yet. It’s interesting. The Chinese stock market began to discount the slowdown in economic growth actually precisely a year ago, in August, 2009. The market peaked out. And then drifted lower, but now that the bad news is essentially out, the market has started to rebound.”

On whether the property market is the biggest weakness in China:

“I’d like to make the following observation. We have a global economy, and an economy has different sectors. And you can have recession in some sectors of the economy. You can have a crash, say, in the property market, and you can have other sectors expanding. [Bolton: That’s the biggest weakness, right Marc, as far as you’re concerned, in the Chinese economy right now, it is the overheating in the property market?….] Well, I’m not sure. Because if they ease again, the speculation will go on. But we have credit problems in the property market undoubtedly. We have Ponzi schemes like loan sharking operations all over China. That’s a very dangerous. But what I would like to point out is that the agricultural sector, the rural sector in China and everywhere in the world is doing relatively well, because agricultural prices have started to rebound. And that was also seen in Thailand. In Thailand, new car sales are up very strongly.”

On whether the Chinese government will delay increasing interest rates this year:

“I think even if they increase it marginally it’s meaningless. Because interest rates are far below nominal GDP growth, and in my opinion far below inflation.”

MSCI goes beyond BRICs

MSCI has launched the MSCI EM Beyond BRIC Index, a new subset of the MSCI Emerging Markets Index.

The new index comprises seventeen countries and excludes the ‘BRIC’ economies of Brazil, Russia, India and China, which currently represent around 40% of the wider emerging markets index. MSCI said the new index offered a way to ‘track and evaluate the emerging markets opportunity set for those wishing to invest in countries outside the BRIC region’.

The index is market cap weighted, but the weighting towards the larger markets of Korea, South Africa and Taiwan is capped on a quarterly basis at 15% to ensure greater diversification. This gives greater prominence to smaller emerging market countries.

As it stands, after Korea, South Africa and Taiwan, the largest weightings in the index will be towards Thailand, Malaysia and Indonesia. Chile, Columbia, the Philippines, Turkey and Poland all have a weighting in excess of 2%.

Performance comparison (more…)

UBS latest to cut India's FY12 growth forecast to 7.7 pct

(Reuters) – UBS on Wednesday joined the growing list of brokerages lowering India’s 2011/12 economic growth forecast, paring Asia’s third-largest economy’s growth to 7.7 percent from 8 percent, as interest rate rises and higher oil prices start to bite.

Morgan Stanley and Bank of America-Merrill Lynch had last week lowered their growth forecast for the Indian economy in the next fiscal year that begins in April to 7.7 percent and 8.2 percent.

UBS also cut the world’s second-fastest growing major economy’s gross domestic product forecast for the current fiscal year to 8.7 percent from 9 percent on weak December-quarter growth and continuing weakness in the industrial output growth.

“The reason for the slowdown is as before: lagged impact of todays tight money on demand plus effect of higher oil prices,” Philip Wyatt, an economist at UBS wrote in a note, adding he sees the economy recovering to 8.6 percent growth in 2012/13.

India’s economy grew at a slower-than-expected 8.2 percent in the December quarter from a year earlier, after expanding at 8.9 percent in the previous two quarters.

Industrial output in January topped forecasts, but was still weak at 3.7 percent annual rise.

“We expect WPI (wholesale price index) inflation to accelerate from 7 percent in March 2011 to 7.7 percent a year hence,” Wyatt wrote.

India’s headline inflation unexpectedly quickened in February on rising fuel and manufacturing prices, raising expectations for aggressive central bank tightening beginning later this week. (more…)

What banks will be burned by Greece ?

GreeceflagAt end-Q3 foreigners held EUR216bn of Greek government debt (72.3% of the total market, 90.2% of GDP), having doubled their position since end-04. Given recent downgrades and another round of revisions to budget data from previous years, a sharp slowdown or even reversal of inflows from foreigners into the local debt market has become an increasing risk.”

Read the full story on FT Alphaville’s blog, by Tracy Alloway

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