Daily Commentary BY THE CURVE TEAM –

Growth Forecasts Cut Again

10th of April, 2019

For the third time in the past six months the IMF has been forced to downgrade its global growth forecasts as geopolitical uncertainty continues to weigh on activity.

In their latest World Economic Outlook, the International Monetary Fund has been forced to revised down their expectations for global growth, driven largely by a deteriorating outlook for developed nations. In the opening of the report, the outline just how much has changed, saying that:

“the escalation of US–China trade tensions, macroeconomic stress in Argentina and Turkey, disruptions to the auto sector in Germany, tighter credit policies in China, and financial tightening alongside the normalisation of monetary policy in the larger advanced economies have all contributed to a significantly weakened global expansion, especially in the second half of 2018.”

Global growth is now expected to only reach 3.3% in 2019, the slowest pace since the Global Financial Crisis with Advanced Economies only expected to growth by 1.8%. These forecasts are down 0.2% from January this year and 0.4% since last October.

Forecasts for growth in the US have held up quite well in comparison to most with Germany the hardest hit as the most recent data on factory orders and trade have confirmed. Australia was not spared from the downgrades either.

According to the IMF, the Australian economy is only expected to grow by 2.1% in 2019 before picking up to 2.8% in 2020, well below the expectations of both the RBA and Treasury.

The IMF also sounded a warning in summing up their outlook, especially for the year ahead, saying that:

“This is a delicate year for the global economy. If the downside risks do not materialise and the policy support put in place is effective, then global growth will return to 3.6 percent in 2020. If, however, any of the major risks materialise, then the expected recoveries in stressed economies, export-dependent economies, and highly indebted economies may not occur.”

Given Australia’s current situation, we are both heavily reliant on exports and are highly indebted, which could pose issues should downside risk on the global front materialise.

However for now the focus remains on what is happening here at home. We could get an update on the RBA’s thinking this afternoon when Guy Debelle delivers a speech titled ‘The State of the Economy’ at the American Chamber of Commerce in Australia Business School event in Adelaide.

David Flanagan

Director - Interest Rate Markets