The IMF reduces global growth forecast significantly

Market news

Yesterday was a quiet day for the markets after the long Easter break with no significant economic data releases.

The main announcement was the IMF’s global growth forecast which saw global growth forecasts drastically cut because of the war in Ukraine, warning that Russia’s invasion of the Ukraine could lead to the fragmentation of the world economy into rival blocs.

The IMF said prospects had worsened “significantly” in the past three months as it reduced its growth estimate for 2022 from 4.4% to 3.6%. They went on to say that every member of the G7 nations and the bigger developing nations would grow less rapidly this year than previously expected, and there was a strong risk of an even worse outcome.

The UK is expected to be the joint-best performer in the G7 this year despite having its growth estimate cut from 4.7% to 3.7%, but is forecast to be the worst performer next year when the IMF is pencilling in growth of just 1.2%. Consumer spending is predicted to be weaker than expected as the cost of living crisis bites, while tighter financial conditions are expected to cool investment.

According to the IMF, the US see the least damage as a result of the conflict and had its growth number revised fractionally down to 3.7%.

The economies of Germany and France both have far greater exposure to the conflict with their reliance on Russian energy and had their growth estimates reduced by 1.7 points and 1.5 points respectively, to 2.1% and 2.3%.

The IMF said a further two percentage points could be shaved off global growth next year in the event the war in Ukraine led to even higher energy prices, entrenched inflation and big losses on financial markets.

GBP

The pound came back under pressure due to lingering doubts about the Bank of England’s next move at their May policy meeting. The BoE has hiked rates at its last three policy meetings. However there are now doubts whether the BoE is able to hike rates again with fears that a further increase could tip the UK economy into recession.

Today will be another quiet day on the data front with the only release of note being German wholesale inflation, which is forecast to rise to record high of 29.1% year on year for March.

The market will also be looking ahead to tomorrow when we have the BoE Governor Bailey speaking. His comments will be closely scrutinised for clues on what the central bank’s future policy path will be.

Key announcements

08:30 – EUR – German PPI m/m – released 4.9% forecast 2.7%
15:00 – USD – US Existing home sales – forecast 5.78m
All day – IMF meetings