Tuesday, July 29, 2014

Bloomberg: IMF Warns of Potential Risks to Global Growth

Well, in this article we have the IMF once again warning that global GDP may be lower than they had expected. This is in line with what Jim Rickards predicted earlier this year. But so far the FED is not indicating any change in its QE tapering plans. Below are quotes from the article and then a few comments:

"Sharply higher interest rates around the world could combine with weaker growth in emerging markets to slice as much as 2 percentage points off global growth in the next five years, the International Monetary Fund said on Tuesday."

"The two developments would reinforce each other, prompting slower growth and hurting in particular those emerging markets with large economic imbalances, such as Argentina, Brazil, Russia and Turkey."

"Central banks in the United States, Japan, the euro zone and Britain sharply lowered rates to boost growth in the wake of the global financial crisis, but Britain and the United States are now preparing to reverse course."

"The IMF said the more sluggish expansion in the developing world, long the engine of the global recovery, was increasingly likely due to structural, not cyclical, factors."
My added comments: All this is what Jim Rickards predicted as he insists that the US FED is "tapering into weakness" which he says will lead to another recession by early next year. The IMF has had to backtrack once again on a too rosy forecast. Keep in mind that the US  first quarter GDP was way worse than forecast so they missed that badly as well. 
Despite all this, the FED is continuing to project the image that the economy is in recovery and that they "may raise interest rates sooner than people expect".  On the surface they project that things are stable and calm, but Mohamed A. El-Erian says in this article the FED has concerns below the surface and faces some tough choices soon. And this CNBC article suggests the markets are divided on what FED policy may do to the markets. So we will continue to follow that. 
The IMF article also notes that the Russian sanctions may impact global GDP and mentions how connected the global economy is. A problem anywhere can lead to a problem everywhere.
Also notice that the IMF lists Argentina as a problem area. Keep in mind that tomorrow we find out if Argentina is going to default on its sovereign debt

Added note 8-6-15: A full list of systemic risk warnings can be found on this blog page 

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