Yesterday, the IMF cut its global growth forecast for 2022 owning primarily to continuing uncertainties around the pandemic, ongoing supply chain issues which are hampering trade and the precarious situation concerning China’s property market. Hence, they estimate that the global economy will grow 4.4% this year – down from earlier predictions of 5.9%. This outlook provides updates and amendments to the IMF’s World Economic Outlook paper which was published last October.
Central to their economic scepticism is their decision to downgrade growth forecasts in both the US and China. For example, they reduced the US’s forecasts from 5.2% to 4% citing issues around persisting inflation and Biden’s inability to pass his flagship $2tn ‘Build Back Better’ stimulus (which even some moderate democrats in Congress are refusing to support). Across the Pacific, the IMF also slashed China’s growth forecasts from 5.6% to 4.8% given Beijing’s ‘Zero Tolerance’ Covid policies where near total socio-economic lockdowns are the standard defence to outbreaks and the fragility of the property giant, Evergrande which has over $300 billion in liabilities ($20 billion of which are international bonds that are all considered to be in default).
The slowdown in global growth will also adversely affect the British economy, the IMF’s updated report predicts, with the UK’s growth forecast at 4.7%. This would represent a considerable deceleration relative to 2021 when the UK’s economy grew 7.2%. While the UK attempts to combat the highest inflation in 30 years and worker shortages, in addition to analysts warning of increasing stresses on the cost of living, the IMF’s predictions nevertheless put the UK on course for the highest growth in the G7 (although this is as much a reflection on difficulties in the remaining six states).
For instance, given German’s energy crisis, micro-chip shortages hindering its manufacturing sector and geo-political concerns on its eastern side, its growth is forecast at just 3.8% this year – although this would represent an increase from their 2021 growth which came in at 2.7%.
Today could well see the publication of Sue Gray’s report on parties on Downing Street during lockdown. The PM will no doubt be hoping that any report is not published before PMQ’s – which could see him face criticism from both sides of the dispatch box. While the exact number of members of the PCP handing letters of no confidence to the 1922 Committee remains unknown (although it is estimated that it could be around ten), over 54 Conservative MPs submitting such letters would trigger a vote on his leadership. Yesterday, the Met also announced that they would launch an investigation into the “potential breaches of Covid-19 regulations” at Downing Street and hence today Johnson and his cabinet will no doubt be extremely apprehensive on the details of Gray’s report.
Yesterday, it emerged that the US is putting some 8,500 troops on high alert in NATO states bordering Ukraine in an act of deterrence against Russia’s build-up of an estimated 100,000 troops on Ukraine’s border. The Pentagon’s decision comes at a time when the US delivered around 90 tonnes of military materiel and ammunition to Ukraine over the weekend, and the Blinken/Lavrov diplomatic negotiations last week failed to make substantive progress. Yesterday evening, news also broke that Macron will attempt to dissuade Putin over a telephone conversation on Friday and Washington warned that they could take measures to place personal sanctions on Putin (something which they have previously done for Assad and Gaddafi).
Market Data Today
At 15:00 (GMT) the Bank of Canada will announce their latest interest rate decision. The current base interest rate is 0.25% and the market is predicting that the central bank will not deviate from this.
Later in the day we have the Fed’s interest rate decision where again the market is expecting rates to remain unchanged at 0.25%. However, given inflation in the US standing at 7%, the market has priced in a rate hike at the FOMC’s next meeting on 16th Mach.
Tomorrow, all eyes will be on the US’s Q4 GDP figures and any developments around the Sue Gray report on parties at Number 10.
Have a great day.