Home' Trinidad and Tobago Guardian : October 8th 2015 Contents BG20 INTERNATIONAL
BUSINESS GUARDIAN www.guardian.co.tt OCTOBER 8 • 2015
China s slowdown and tumbling commodity prices
will push global economic growth this year to the
lowest level since the recession year 2009, the Inter-
national Monetary Fund predicted Tuesday.
In a report Tuesday in advance of the IMF-World
Bank annual meetings here this week, the fund says
the world economy will grow 3.1 per cent this year,
down from a July forecast of 3.3 per cent and from
3.4 per cent growth last year.
"The risks seem more tilted to the downside than
they did just a few months ago," IMF chief economist
Maurice Obstfeld, told reporters.
Still, Obstfeld downplayed the risk of a global
The Federal Reserve last month cited economic
weakness around the world---and especially in China---
when it decided to postpone a long-anticipated
increase in short-term US interest rates, which it s
kept near zero since December 2008. Obstfeld said
any rate increase in the United States would be good
news, reflecting the Fed s vote of confidence in the
American economy, the world s largest.
The fund predicts the United States will grow 2.6
per cent this year, up from a July forecast of 2.5 per
cent and from 2.4 per cent growth last year.
Emerging market economies will likely grow four
per cent, which would mark the fifth straight annual
drop. They have been hurt by an economic slowdown
in China, which has reduced demand for emerging
market raw materials and pushed down prices of
commodities such as copper and oil.
"What happens in China has repercussions for the
entire world economy," Obstfeld said.
Among those hardest hit by the commodities bust:
the Brazilian economy, forecast to contract by three
per cent this year; and Russia, forecast to shrink 3.8
per cent because of lower oil prices and economic
sanctions imposed by the West as punishment for
Russian aggression in Ukraine.
Collapsing energy prices are also hurting Canada.
The IMF downgraded its forecast for the Canadian
economy by half a per centage point to 1.5 per cent
The Chinese economy has been slowing for four
straight years, partly because the government is engi-
neering a transition away from dependence on exports
and often-inefficient investments. Instead, they are
moving toward slower, more sustainable growth based
on consumer spending. The IMF expects Chinese
economic growth to drop to a 25-year low 6.8 per
cent this year, but that is unchanged from its July
Chinese manufacturers are struggling, but "services
seem to be booming," Obstfeld said.
The IMF foresees continued improvement in
Europe. It kept its forecast for 1.5 per cent growth
this year in the 19 countries that share the euro cur-
The Japanese economy is expected to grow 0.6
per cent this year, down from the IMF s July forecast
of 0.8 per cent but an improvement from last year
when it shrank 0.1 per cent. AP
Flanked by interest rate deci-
sions in Britain, Japan and
Australia, the IMF s annual
meeting in Lima takes centre
stage in the calendar next
week, with policymakers
focussing on China s economic slide and its
impact on the rest of the world.
Activity in China s vast factory sector
shrank again in September fuelling fears
that the economy there may be cooling
more rapidly than thought just a few months
ago, with a reverberating impact on emerging
and developed economies.
Meanwhile, unexpectedly weak US jobs
data out on Friday further clouded the global
economic picture, and pointed to a much-
anticipated rate hike from the Federal Reserve
being delayed further.
Equity markets worldwide have been
falling with Wall Street just recording its
worst quarter since 2011, so IMF delegates,
primarily central bank governors and finance
ministers from around the globe, will seek
reassurances from China that it can smooth,
if not halt, its slide.
"Driven by fears of a sharp slowdown,
they will likely delay the structural adjust-
ments in the coming two years and use the
old normal approach to support the econ-
omy, that is, rely on credit expansion and
public investment," Nordea economist Amy
Yuan Zhuang said.
"Despite the financial market turmoil, we
still see a soft landing as the most plausible
scenario in the coming two years," she added.
The world s biggest economy, the United
States is one of the least exposed to China
and minutes of the Fed s September rate
meeting, due on Thursday, will give a strong
signal of whether a hike, the first in nearly
a decade, could still come this year.
"The US stands out for its relatively low
exposure to the foreign sector," Credit Suisse
said. "Not only is direct domestic consump-
tion and investment low, but even within
investment, the amount done to support
export capacity is likely much lower than
the other economies, given the US s low
Still, some analysts said the minutes
could be less hawkish than recent com-
mentary from top officials like Fed Chair
Janet Yellen or New York Fed President
William Dudley, who had said the United
States was on track to raise rates this year.
Expectation for a less hawkish tone were
enhanced by the weak employment data.
The Bank of England, not keen to be
the first to hike, will stay put next Thursday
and analysts still expect just one rate setter
to vote for a rise, leaving the bank on
course to make its first move well after
In the wake of the US payrolls data,
markets pushed back their bets on the
timing of the BoE s first interest rate hike
since 2007 by several months.
It was now priced in for around early
2017, said John Wraith, head of UK rates
strategy at UBS.
"When you get a number like that (pay-
rolls) which shocks people s expectations
about the Fed, it really does have a direct
spillover to the outlook for the UK," Wraith
"The fear is that the slowdown everywhere
else, in China and emerging markets, is
going to spill over into economies that up
until now have been doing okay, like the US
and the UK."
Japan appears to be on the brink of a
recession and the Bank of Japan s tankan
survey indicates worsening conditions. Still,
the data are not expected to be enough to
trigger more stimulus when the bank meets
on Tuesday and Wednesday.
Instead, the BOJ may wait at least until
its late October meeting, when economic
forecasts are updated but more likely until
early next year, when the impact of the Chi-
nese slowdown is better gauged.
The Reserve Bank of Australia will also
keep rates on hold on Tuesday and possibly
for all of next year, satisfied that the cur-
rency s (AUD=) slide to its weakest level
since mid-2009 has eased conditions enough
to soften the impact of the bust following
its once-in-a-century mining boom.
"The only scenario we could see the RBA
thinking about another policy easing would
be a sharp deterioration in the global growth
outlook and an accompanying deterioration
in the local economy and jobs market,"
Commonwealth Bank said in a note to
"At this stage, the probability of this sce-
nario developing appears small and probably
would require an economic meltdown in
China and other Asian economies," CBA
forecast for world,
economies will likely
grow four per cent, which
would mark the fifth
straight annual drop.
People gather in the Intiyacta neighborhood in Lima, Peru, Monday, October 5, 2015. The annual meetings of the World Bank Group and
the International Monetary Fund are taking place in Peru on October 6-11, a country that according to the World Bank, has been able to
reduce its poverty rate by more than half since 2002. AP
take the spotlight
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