In the latest economic outlook, the International Monetary Fund (IMF) maintained the global growth projection of 3.5 per cent for 2017. As Chart 1 shows the Fund has upped its growth forecast for emerging markets and developing economies to 4.6 per cent in 2017, from 4.3 per cent earlier, largely on the back of stronger Chinese growth. It has lowered the US growth estimates on the grounds that the fiscal policy of the country is likely to be less expansionary than anticipated. For India, the forecast remains unchanged.
Source: IMF World Economic Outlook, July 2017
Source: IMF World Economic Outlook, July 2017
The headline inflation rate has softened across both advanced economies and emerging markets, as shown in Chart 3. This is largely because the commodity price rebound seen in the second half of 2016 has faded. Crude oil prices are unlikely to trend upward (Chart 4), due to the dynamics of the shale market.
Sources: IMF, World Bank
Source: Bloomberg
With the inflation rate well below its target of two per cent, the US Federal Reserve kept rates at 1-1.25 per cent in its latest meeting. The expectation is that the Fed will now raise rates in December. And while the US and Chinese yields have firmed up over the past year or so, Indian G-sec yields have fallen, as shown in Chart 5.
Source: Bloomberg
Equity prices have remained strong in both advanced and emerging markets, as shown in Chart 6, signalling continued optimism. But a faster than expected winding down on the Fed balance sheet could tighten global financial conditions.
Source: Bloomberg
As a consequence of the uncertainty over Brexit, the pound has fallen 10.6 per cent against the dollar as shown in Chart 7, while stronger than anticipated growth in the eurozone has pushed up the currency (euro) against the dollar.
Source: Bloomberg