IMF revises emerging market growth downward after growth fails to accelerate

Market Realist

Reduced growth was common across most economies globally, though it was more evident in the BRICS (Brazil, Russia, India, China, and South Africa)

At the International Monetary Fund Press Conference on World Economic Outlook, IMF officials communicated their reduced revisions to global growth, which they revised down to 3.1% from 3.3% back in April. The IMF cut next year’s forecast by the same amount, and it’s now at 3.8% from its previous 4.0%. The -0.2 percentage points revision was mostly even across the board, with the exception of Japan (EWJ) and the United Kingdom. The downward revision was caused by “appreciably weaker domestic demand and slower growth in several key emerging market economies (EEM), as well as by a more protracted recession in the euro area.”

Europe remains down

The Eurozone itself is expected to shrink 0.6%. Spain and Italy are contracting, and the strongholds of Europe—Germany and France—are barely improving. The IMF’s chief economist, Olivier Blanchard, mentioned that relative costs and competitiveness improved, but that it would take more than that to increase demand.

The only European country that showed improvements was the United Kingdom, whose GDP forecast increased. Nonetheless, the latest manufacturing data showed a slowdown for June. The market, though, reacted positively, as this means the Bank of England is likely to announce more stimulus measures in the next August meeting.

Emerging markets hitting speedbumps

Blanchard stated, ”After years of strong growth, the BRICS (BKF) are beginning to run into speedbumps.” His further remarks mentioned that weaker demand out of Europe and other developed markets would contribute to the slowdown in the emerging markets.

China and Brazil were among the hardest-hit compared to the April forecasts. China (FXI) revised down 0.3 percentage points to 7.8%, and Brazil (EWZ) revised down 0.5 percentage points to 2.5%. One of the IMF’s key points was that inflation remained despite the slowdown, and this was quite evident in Brazil, China, India and Russia. According to Blanchard, this implies that potential output slowed in line with actual output, which means that post-crisis growth, while high, may be much lower than growth pre-crisis.

Check back on Monday to read about IMF’s Christine Lagardes speech on a three-speed world and which economies will grow faster.

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