imf lowers global growth forecast

IMF Lowers Global Growth Forecast

Risk markets are mixed in the Asian session today as the IMF cut global growth forecasts but sentiments were supported by China's manufacturing data. In the currency markets, Yen crosses seemed to have drawn some support from near term support level and pared some of this week's losses. The Canadian dollar remains weak as post Bank of Canada selling is still in progress, the Australian dollar is also a touch weaker. European majors are stuck in tight range against the dollar for the moment. The key focuses for the rest of the week will be on whether yen selling will gather momentum again, also, whether Euro Dollar will finally break out from recent tight range.

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The IMF lowered its global economic forecast. The world lender forecast that world Gross Domestic Product would expand 3.5% in 2013 and then 4.1% in 2014. These were below October's estimates of 3.6% and 4.6% respectively. In the Eurozone, the IMF estimated that the economy would contract 0.2%, down from previous estimate of 0.2% growth. For the US, growth would ease to 2% this year down from the 2.1% estimated previously. The Chinese economy would grow 8.2% in both 2013 and 2014. The IMF noted that "the near-term outlook for the euro area has been revised downward, even though progress in national adjustment and a strengthened EU wide policy response to the euro area crisis reduced tail risks and improved financial conditions for sovereigns in the periphery". But, "the return to recovery after a protracted contraction is delayed" and "Risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained." It also warned that "adjustment efforts in the periphery countries need to be sustained and must be supported by the center".



In China, the HSBC PMI manufacturing index rose from 51.5 to 51.9 in January, hitting the highest level in two years since January 2011. HSBC noted that "despite the still-tepid external demand, the domestic- driven restocking process is likely to add steam to China's ongoing recovery in the coming months." The official PMI manufacturing will be released February 1st. In Japan, trade deficit narrowed slightly to 800.7 billion yen in December as exports dropped 2.4% while imports rose 1.2%. Year on year, exports to China continued to fall by 15.8% while exports to US also dropped 0.8% year on year. Exports to Europe were also weak with Germany down 0.2% year on year, UK down 10.2% and France down 16.8%.



Yesterday, the bank of Canada left its key rate unchanged at 1% as expected. Correspondingly, the Bank Rate stayed at 1.25% and the deposit rate at point 75%. The central bank also revised lowered its GDP forecast to 2% in 2013, down from previous estimate of 2.3%. The economy will reach full capacity in the second half of 2014 with GDP accelerating to 2.7% by end of year. Inflation is expected to average at 0.9% in the first quarter of 2013 and stay below 2% until the third quarter. The Bank of Canada forecast inflation would be at 2% by the fourth quarter. The Canadian dollar slipped after the report as the central bank saw less urgency to hike interest rates.



Looking ahead, PMI manufacturing data from Eurozone will be the main focus today and both PMI manufacturing and services indices are expected to show mild improvements. The US will release jobless claims and leading indicators.


imf lowers global growth forecast

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