Tweaking by the Fund on Global Growth

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Culled—Proshare

July 25, 2017/FBNQuest Research

The IMF’s new World Economic Outlook Update (WEO) has left its global growth forecasts for this year and 2018 unchanged from three months ago at 3.5% and 3.6%, yet revised the country contributions.

For the US, the outlook now has 2.1% growth for both years, compared with 2.3% and 2.5% in April, because it has lowered its expectations of the promised fiscal stimulus.

At the same time, it has raised its projections for China and the Eurozone (both years), and for Japan and Brazil in 2017. Short-term risks are seen as balanced, medium-term tilted to the downside.

The outlook raised its forecasts for China on the basis of strong Q1 2017 GDP. It may have to repeat the exercise now that the Chinese authorities have released more robust data for Q2 of 6.9% y/y.

The Fund assumes that the authorities will delay the required fiscal adjustment in China beyond 2018 and so maintain high public investment. This would augur well for exporters of commodities, if not for the public debt mountain.

The underlying price assumptions, based on the futures markets, for the Fund’s basket of three crude blends (including UK Brent) have been revised since April to increases of 21.3% this year to US$51.9/b and 0.2% for 2018 to US$52.0/b.

The outlook’s forecasts for growth in Nigeria this year and next are unchanged at 0.8% and 1.9%.

Trends in world output growth (% chg y/y)

2016E 2017F 2018F
World 3.2 3.5 3.6
US 1.6 2.1 2.1
Eurozone 1.8 1.9 1.7
Japan 1.0 1.3 0.6
Brazil -3.6 0.3 1.3
Russia -0.2 1.4 1.4
India 7.1 7.2 7.7
China 6.7 6.7 6.4
SSA 1.3 2.7 3.5
Nigeria -1.6 0.8 1.9
South Africa 0.3 1.0 1.2
 

Sources: IMF, World Economic Outlook Update, July 2017; FBNQuest Research

Advice directed by the Fund at Nigeria (among others) is that it should allow exchange rates to buffer shocks, introduce growth-friendly measures within fiscal consolidation and diversify its sources of growth over time. The FGN will not quarrel with the second and third policy measures but is in no hurry to move on the first, which would require exchange-rate unification. 

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