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IMF Upwardly Revise Global Growth But Concerns Remain

Expanding global economy, decline of UK house prices, Trump faces federal charges, and weak US Manufacturing PMIs continue.

The IMF have announced that the global economy is now projected to expand 3%, an upward revision from their earlier April estimate. The IMF noted that this remains below historical standard and comes as economies around the world – both developed and developing – tighten monetary and fiscal conditions to combat inflation. With much of the world’s growth being contingent on these monetary and fiscal conditions, the IMF expect to see Global headline inflation decelerate 1.9 percentage points from last year to 6.8 percent this year. Meanwhile, the fund also expects to see global headline inflation continue to fall to 5.2% over 2024.

Working on their previous estimates for growth set in April, the IMF noted that the resolution of the US debt ceiling and authoritative actions to help the stability of the Swiss and US

 

banking sector have improved this year’s outlook. Notwithstanding this, the Washington, DC headquartered institution stated that the “balance of risks to global growth remains tilted to the downside”. Chiefly, they drew attention to the notion that a further deterioration of the Russian-Ukrainian war could drive further restrictive monetary policies if it were to increase inflationary pressures. Moreover, as tight monetary conditions could put further stress on bank’s balance sheets, ‘financial sector turbulence could resume’ while public sector debt burdens could put further pressure on governments. Chinese growth and the speed of their post-covid recovery also remains the subject of debate, with the IMF noting the international implications of any further fragility in their property sector.

UK House Prices Decline at Fastest Rate Since 2009

The Nationwide UK house price index has fallen at its fastest annual rate in 14 years as the market continues to try to navigate rising interest rates. The data indicated that UK house prices slipped 3.8% between July 2022 and July 2023 with the average house price also falling some 4.5% from their recent peak of August 2022. This means that the average value of a house in the UK is now £260,828 as the costs of mortgages continue to appreciate. For example, this week has seen the average five-year fixed rate tick up to some 6.37% while the average two year-rate has risen to 6.85%. The rising costs of mortgages continues to weigh on prospective buyers, which has no doubt fed into the lower number of property transactions (which have fallen by about 14% between June 2022 and June 2023).

With the rising cost of mortgages being the key topic of conversation, Nationwide’s Chief Economist Robert Gardner said that “a prospective buyer, earning the average wage and looking to buy the typical first-time buyer property with a 20% deposit, would see monthly mortgage payments account for 43% of their take home pay (assuming a 6% mortgage rate). This is up from 32% a year ago and well above the long-run average of 29%”. Gardener also noted that with a 10% deposit on a house equating to 55% of gross annual average income, entry requirements remain challenging. All eyes now turn to the BoE’s interest rate decision tomorrow afternoon and the impact that any rate hike would have on average mortgage rates and the property market more generally.

Trump Indicted

Former President Donald Trump has been indicted in Washington after federal charges were put against him in the relation to the 2020 presidential election. Presently, Trump has been charged with conspiracy to: defraud the US, obstruct an official proceeding, obstruction of and attempt to obstruct an official proceeding, as well as conspiracy against the right to vote and have that vote counted. All eyes now turn to Washington to watch these developments unfold as well as see the impact that it will have on his election bid.

 

US Manufacturing PMIs Weaken for Ninth Consecutive Month

US ISM Manufacturing PMIs came in at 46.4pts for July yesterday, marking the ninth consecutive monthly contraction. This also came in softer-than-expected missing expectations of a 46.8pt print. The weak figure comes as new orders, production and inventories all contracted (though at a slower pace than last month).

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