Sunday, 21 October, 2018

International Monetary Fund downgrades SA's 2018 growth forecast to 0.8%

IMF chief economist Maurice Obstfeld IMF chief economist Maurice Obstfeld has issued a stark warning about the need to create a more inclusive form of capitalism Credit STEPHEN JAFFE AFP
Ginger Lawrence | 11 October, 2018, 01:45

But the fund lowered China's economic outlook for 2019 to 6.2 per cent, which would be the country's slowest growth since 1990.

After a visit last week, the International Monetary Fund said Pakistan is facing significant economic challenges, with diminishing growth, high fiscal and current account deficits, and low foreign exchange reserves.

The worldwide finance agency dropped its projection for world economic growth by two-tenths of a percentage point for both 2018 and 2019 to 3.7 percent, the first time it had trimmed its economic outlook in more than two years.

This acceleration reflected a rebound from transitory shocks (demonetisation and implementation of the GST), with strengthening investment and robust private consumption, it said. China was the fastest growing economy in 2017 as it was ahead of India by 0.2 percentage points.

With much of the US-China tariff war's impact to be felt next year, the Fund cut its 2019 US growth forecast to 2.5% from 2.7% previously, while it cut China's 2019 growth forecast to 6.2% from 6.4%.

"Although risks are balanced, uncertainty remains substantial around the baseline assumptions for oil prices because Saudi Arabia's spare capacity is shrinking and U.S. sanctions against Iran will both weigh on Iran's oil production prospects in the medium term and reduce Iran's crude exports in the short term, requiring others with spare production capacity to step in".

The Financial Stability Report is the second time in 24 hours the International Monetary Fund has published sober warnings about the state of global finance.

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Also on Tuesday, it projected that inflation in Nigeria would increase to 13.5 per cent next year.

The May federal budget forecast 3 per cent GDP in 2018-19 and the same the following financial year. The benchmark Shanghai Composite Index has already plunged 17.7 per cent this year, making the Chinese equity market the second worst stock market worldwide, only next to the Greek market, which has fallen 18.4 per cent. The acceleration relative to 2016-17 reflects a more supportive external environment, including stronger global growth, higher commodity prices, and improved capital market access, following efforts to improve fiscal balances in the aftermath of the commodity price slump.

"However, efficiency, competition, and governance in the banking system should still be improved".

"Priority areas in Russian Federation include improving property rights and governance, enhancing the institutional infrastructure, reforming labor markets, and investing in innovation and infrastructure", the report added.

It added, "A high interest burden and risks from rising yields also require continued focus on debt reduction to establish policy credibility and build buffers".

The IMF announced it had reduced its outlook on the global economy to a 3.7% growth rate for this year and next, down 0.2% from what it had originally predicted in July.

The report says that outflows could hit $100bn (£76.4bn) over a year, about 0.6% of emerging market economies' gross national income.