The January IMF Update ...
The IMF released the latest World Economic Outlook this week. Growth is expected to moderate this year to 4.4% from 5.9% last year. The revision is a downward adjustment of 0.5%. In the earlier October forecast, growth of 4.9% was expected.
Weaker growth is expected. The shadow of the Omicron virus overhangs activity. Countries have reimposed mobility and work restrictions. Supply disruptions have continued into the new year. Rising shipping charges, energy prices and metal costs have resulted in higher and more broadly based inflation than anticipated. Interest rates are set to rise in the U.S. and the West to offset the inflation surge. China seeks to alleviate monetary policy in the East.
Next year, world growth is expected to slow further to 3.8%. This is slightly better than the 3.6% forecast in October. The IMF cautions, the forecast is conditional on an alleviation of health conditions and restrictions. Faster and wider vaccination would be of assistance. Better health therapies would also help.
World Trade and Inflation ...
World trade is forecast to iincrease by 6% in 2022 and by 5% in 2023. A strong background for international activity set to continue. World shipping rates are set to fall back to trend average towards the end of the year.
Inflation pressures are set to ease. The IMF expects inflation to average 3.9% amongst the advance economies in the year slowing to just over 2% next year. In emerging markets, inflation will rise to 5.9% this year up from 5.7% last year. Headline inflation will moderate (but not by much) to 4.7% next.
Oil and gas prices are key to the inflation outlook. The IMF assumes an oil price of around $80 dollars per barrel Brent Crude basis. Oil traded at $90 dollars at the end of last week. Geo political tensions pushing prices higher. $75 - $80 dollars remains our benchmark call for the year.
Risks to the global baseline are tilted to the downside, the IMF warns. The pandemic, supply chain disruptions, energy prices, rising wage costs may impact on growth. Risks to currencies, capital flows and asset prices may result from tighter monetary policies to combat inflation.
Geopolitical tensions remain high. Russia on the borders of the Ukraine. China on the edge of the South China sea. China US decoupling. We monitor fifteen world hot spots with ten conflicts to watch. Rising tensions between the UK and France should not really have to figure in our International Relations Review.
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