International Monetary Fund upgrades outlook on Russian Federation as economy recovers

Irving Hamilton
October 12, 2018

The revised estimates includes a worsening outlook for developing economies this year and next compared to the July report, as well as downgrades for the USA and China in 2019. Citing the impact of USA taxes on Chinese imports, however, the International Monetary Fund shaved the outlook for China next year to 6.2 percent, which would be the country's slowest growth since 1990.

The IMF's analysis suggests that there is a 5 per cent probability, emerging market economies (excluding China) could face debt portfolio outflows of US$100 billion or more over a period of four quarters (equivalent to 0.6 per cent of their combined GDP), broadly similar in magnitude to the Global Financial Crisis.

It will be detrimental on both accounts for all participants, Lagarde told a news conference during the annual meetings of the International Monetary Fund and World Bank in Indonesian resort island of Bali. But growth could weaken significantly further if additional trade protectionist measures are put in place, it said.

Tensions have soared in recent months with Donald Trump's administration rolling out billions of dollars in tariffs against China in a bid to tackle its trade deficit and rein in what Washington views as unacceptable trade practices by the Asian giant.

"If you look at emerging market economies, that includes India, you see that private debt in the last 10 years has increased quite substantially, although in the last two years, since the end of 2015, 2016 and 2017, there is a slowdown in the process of leveraging, but debt is very high and public debt is a very high as well", Gasper said.

The IMF has also revised down its forecast for Indonesia's growth.

Global trade is projected to expand by 4.2 percent this year - 0.6 percent less than expected in July - dropping to 4 percent next year.

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"Thereafter, global growth is projected to slow to 3.6 percent by 2022-23, largely reflecting a moderation in advanced economy growth toward the potential of that group", it added.

It said that the composition of spending and revenues should be growth friendly and protect the most vulnerable.

Medium term growth could drop below 1.4 per cent.

"While foreign investors play a critical role in financial deepening in emerging market economies, excessively high levels of participation may increase the sensitivity of emerging asset markets to external shocks", the report said. -China tariff war's impact to be felt next year, the fund cut its 2019 USA growth forecast to 2.5 percent from 2.7 percent, while it cut China's 2019 growth forecast to 6.2 percent from 6.4 percent.

The IMF notes that credit conditions in emerging markets have tightened since mid-April, driven by a stronger USA dollar, escalating trade tensions, and political and policy risks unique to individual countries.

United States stimulus also adds to the "already-unsustainable" debt and deficit that will undercut future growth, the report warned. The scenario, which imagines a deep global recession, rising interest rates but collapsing stock and real estate prices, would see sovereign debt balloon by nine per cent but net worth dive by another 17 per cent, mainly because falling real estate prices would drag down the value of publicly owned structures.

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