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IMF's World Economic Outlook 'Close to Nonsense'

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Tuesday, 22 January 2019 11:45 AM Current | Bio | Archive

The IMF states in its update of the World Economic Outlook (WEO) that while global growth in 2018 remained close to post crisis highs, the global expansion is weakening and at a rate that is somewhat faster than expected.

The IMF projects global growth at 3.5 percent in 2019 and 3.6 percent in 2020, 0.2 and 0.1 percentage point below last October’s projections.

For investors, it is important to take note that the IMF lowering with such a great precision its global growth number from 3.7 percent in October to 3.5 percent now is, as any economist will tell you, close to nonsense. Economic data aren't accurate enough to decide what global growth is with such a level of precision.

There is no doubt at all that the global economy is slowing from above trend to around trend growth in 2019. That does mean that growth in most, but not all, countries will slow this year.

U.S. Shutdown

The U.S. government is still shut down for the 31st day.

President Donald Trump’s Twitter feed isn't shut down, Politico reports.

Trump tweeted a desire for China to do a real trade deal with the United States.

In fact, it could be that the president probably does not want a comprehensive deal as that would stop China being a target for future attacks over Twitter. Instead, the president would probably favor a deal that is enough to get U.S. equities to rally. U.S. tariffs are just a tax on U.S. equities, but it still allows for anti-China tweets to be tweeted in the run-up to the 2020 election.

Brexit Saga Continuous

UK Prime Minister Theresa May has a cunning plan to end the interminably tedious process of getting the UK out of the European Union (EU). Plan B, revealed yesterday to the British Parliament is in fact Plan A with 65 pounds Sterling knocked off the price from Plan A.

May told parliament that Britain would waive the 65 pound ($84) application fee for EU nationals wishing to stay and would reimburse anyone who has already paid. Aside from that, there is effectively no difference between Plan B and Plan A, Reuters reported.

Economists have long since given up any hope of any coherence from politics on this matter.

What happens next?

Parliament gets now to vote on “Plan A” redux. Terms and conditions will apply in a week’s time. But they also get to offer amendments and those amendments will show the general direction that Parliament may go in the future, as well as showing the lack of agreement on anything at all at the moment.

For now, markets are taking this all as reducing the risk of a no-deal exit and increasing the chances of a longer exit process. March 29th is an increasingly unlikely divorce date.

The British pound (sterling) has strengthened somewhat on the perception of a reduced risk of a no-deal Brexit to slightly above $1.29 per pound sterling

UK Unemployment Rate Falls to Lowest Level Since 1070s

We got UK labor market data that help to explain why UK consumers simply cannot be made to care about politics as the UK labor market has remained relatively strong. Were it not for all the political noise indeed, the Bank of England (BoE) would be raising interest rates.

The unemployment rate in the UK fell to 4 percent in the three months to November 2018, its lowest level since the 1970s and slightly below market expectations of 4.1 percent. The number of unemployed rose by 8,000 on the quarter to 1.37 million while employment increased by 141,000 to a record high of 32.54 million. Average weekly earnings including bonuses rose 3.4 percent on the year, their biggest rise since the three months to July 2008; excluding bonuses, wages grew 3.3 percent, the most since the end of 2008.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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For investors it is important to take note that the IMF lowering with such a great precision its global growth number from 3.7 percent in October to 3.5 percent now is, as any economist will tell you, close to nonsense.
imf, world, economic, outlook
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2019-45-22
Tuesday, 22 January 2019 11:45 AM
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