IMF warns global outlook 'precarious,' no room for policy mistakes

WASHINGTON - The world economy is slowing to its weakest pace since the global financial crisis, as the US-China trade war undercuts business confidence and investment, the IMF said Tuesday.

It warned that the outlook is beset by risks, and urged policymakers to work to find resolutions to trade disputes, since there are limited tools to respond to a new crisis.

"With a synchronized slowdown and uncertain recovery, the global outlook remains precarious," International Monetary Fund chief economist Gita Gopinath said in her introduction to the latest forecasts.

The IMF for the past year has every three months cut projected growth for 2019 as trade conflicts worsened.

In its latest World Economic Outlook it trimmed the estimate by another two-tenths, to 3.0 percent. The report also lowered the 2020 forecast by a tenth to 3.4 percent. 

"At three percent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions," Gopinath said.

In addition, the trade conflicts and a slowdown in auto sales worldwide means trade growth has slowed sharply, falling in the first half of the year to its weakest since 2012, with an estimated increase of just 1.1 percent this year after a 3.6 percent jump in 2018.

RUNNING LOW ON AMMO

While the US economy also has been hit by uncertainty -- largely created by President Donald Trump's trade offensive -- the world's largest economy remains a bright spot on the global stage, the report said.

After upgrading its US outlook in July, the latest WEO reversed course, and cutting the US forecast this year to 2.4 percent -- still above trend, but two-tenths below the July forecast.

In 2020, the IMF projects US GDP to expand by 2.1 percent, unchanged from the prior report.

"For the United States, trade-related uncertainty has had negative effects on investment, but employment and consumption continue to be robust, buoyed also by policy stimulus," Gopinath said.

Major central banks have taken steps to soften the blow to growth by lowering interest rates, without which the downturn would have been worse, she said. 

However, she cautioned that monetary policy "cannot be the only game in town" and governments, notably in countries like Germany, should take advantage of low rates to make investments to support growth.

"With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot," Gopinath warned.

The US-China trade war alone is estimated to shrink the world economy by 0.8 percent in 2020, the IMF said.

The fund warned that risks to the outlook predominate, and the uncertainty around trade policy -- which causes businesses to hold off on investments and undermines confidence -- will take a larger chunk out of growth than the tariffs themselves

SLOWING AUTO SALES

"To forestall such an outcome, policies should decisively aim at defusing trade tensions, reinvigorating multilateral cooperation, and providing timely support to economic activity where needed," the report said.

But trade is not the only reason for the global slowdown: the report notes that in China's economy, for example, growth is moderating as intended amid slowing domestic demand.

Other major economies like Brazil, India, Mexico, Russia and South Africa are slowing this year due to "idiosyncratic reasons" but are expected to recover in 2020.

"A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade," the IMF said, which in addition to the higher tariffs and trade uncertainty is the result of the contracting auto industry. 

That slowdown has had an impact in Germany, China and India, the report said.

source: news.abs-cbn.com

Investors gloomiest on world growth in decade, cut US equity holdings-BAML poll

LONDON - Global investors have the most pessimistic outlook on the world economy since the 2008 financial crisis, according to Bank of America Merrill Lynch's monthly survey, which also showed a sharp fall in US equity allocations.

The survey, released on Tuesday was conducted Oct. 5 to 11 and canvassed investors managing $646 billion. It showed investors remained overweight equities overall, though the 22 percent overweight was just marginally off the recent record low of 19 percent.

But in a sign of caution, they held cash at 5.1 percent -- a net 36 percent overweight -- and well above than the 4.5 percent 10-year average.

The poll showed that a net 38 percent of respondents expected the global economy to slow, the worst outlook on global growth since November 2008. A net 35 percent of participants identified trade war as the biggest risk.

Investors were also gloomy on corporate earnings, with a fifth of respondents expecting global profits to deteriorate in the coming year, BAML said, noting that in January a net 39 percent of investors had predicted an improvement.

Focusing investors' minds is the rise in US, Treasury yields -- 10-year yields hit seven-year highs recently -- expectations of more policy tightening and signs the US economy and company earnings could slow from the sugar-rush provided by tax cuts.

All those fears were among factors which triggered a sudden selloff on Wall Street last week, putting the S&P500 on track for its biggest monthly loss since mid-2015.

There are also concerns about the overwhelming popularity of big tech, with the BAML poll showing US and Chinese tech stocks remained the "most crowded" trade for the ninth consecutive month.

The poll showed a dramatic 17 percentage-point drop in US equity allocations to a net 4 percent overweight, with Japan ousting the United States as investors' most favoured market with an 18 percent overweight.

The decline in European equity holdings too continued, falling six percentage points in October to the lowest since December 2016.

Investors remain reluctant to give up on higher-risk assets however, holding on to an overall underweight position on bonds.

"Investors are bearish on global growth but not bearish enough to signal anything but a short-term bounce in risk assets," BAML chief investment strategist Michael Hartnett said.

The poll found also that the yield level at which investors would rotate from equities to bonds was seen at 3.7 percent on 10-year US Treasuries -- the highest since March when the question was first asked.

Yields are currently around 3.17 percent, almost 10 bps off recent highs.

In an interesting turnaround, a net 51 percent of poll participants named the dollar as overvalued, "notably against emerging market currencies which are seen as never having been more undervalued in survey history," BAML said.

(Reporting by Helen Reid and Sujata Rao Editing by Josephine Mason and Raissa Kasolowsky)

source: news.abs-cbn.com