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| 10 October, 2018

IMF: Has global growth plateaued?

Jameel Ahmad is the Global Head of Currency Strategy and Market Research at FXTM, having joined the company in May 2014 as Chief Market Analyst. He specialising in financial market developments, with a particular emphasis on global currencies, commodities and emerging markets. He holds a BA (Hons) degree in Business Studies with Accountancy & Finance from the University of the West of England. He recently completed an executive education course in Unconventional Monetary Policy at the Barcelona Graduate School of Economics.

Website: www.forextime.com

The International Monetary Fund has cut its global growth forecast

The headline that the IMF has downgraded its economic growth projections for the first time since July 2016 is naturally not positive news for investor sentiment.

There are a few ways that this news can be digested. One is to accept that expecting global growth at a rate of 3.7 percent in comparison to 3.9 percnet still represents a healthy pace of growth when you consider the severe turbulence that the global economy has faced over the past 10 months.

But, on the other side, there are concerning comments from the IMF that a combination of trade tensions and stress in emerging markets is behind the modest downgrade in growth expectations, along with even more worrying comments that the IMF is concerned that global growth might have plateaued, indicates to a degree that there are also reasons for investors to be uneasy about the IMF downgrade.

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For one, the comment that global growth might have plateaued indicates to a degree that current growth rates are as good as the global economy will get. This means that any optimism global growth could peak above 4 percent over the next few years is ambitious at best.

When you then consider that there are a plethora of trade uncertainties that remain unknown and are completely unpredictable, then this might be just the first in a series of several growth downgrades from different institutions. The external uncertainties around trade tensions are also one of the underlying factors behind the stress seen in emerging markets, because investors naturally do not want to carry risk into their portfolios.

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