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IMF warns on growth

By David Morrison  |  22/01/2019 15:58

The International Monetary Fund downgraded its outlook for global growth. This follows on from China’s disappointing GDP number yesterday. The news led to a pull-back in global equities and a sharp sell-off in crude oil
Risk markets turned lower on Tuesday as US traders returned to work after the weekend and the Martin Luther King holiday. Investors were spooked by an economic update from the International Monetary Fund (IMF) ahead of the World Economic Forum which gets underway in Davos today. The IMF downgraded its forecasts for global growth. The Fund now expects GDP growth of 3.5% this year and 3.6% in 2020, down from the 3.7% previously estimated for both years. This follows on from the IMF’s downbeat assessment last October when it blamed the US/China trade dispute for its disappointing outlook. This time round it added in concerns about the Euro zone, highlighting problems for Germany’s automotive sector as it deals with emissions standards and soft domestic demand in Italy due to the government’s budget disagreement with the European Union. In addition, the IMF has warned that the world faces great risks thanks to the growth in government and private debt while both advanced and emerging economies suffer from a coordinated slowdown. On Monday China reported its lowest rate of economic growth for close to 30 years with GDP for 2018 coming in at 6.6%. Fourth quarter GDP fell to 6.4% annualised which is the slowest expansion since the nadir of the financial crisis in 2009.
Oil sells off
The negative economic news helped to drive crude prices sharply lower, with both WTI and Brent down more than 3% in early afternoon trade. China’s oil imports remain robust, but many analysts believe that demand from the country may have peaked. If so, then crude could be due another leg down as it could still be some time before the OPEC+ agreement to cut production by 1.2 million barrels per day has a significant effect on inventories. So, it could be that we get another test of support around $50.50 which looks as if it could mark the right shoulder of a developing head and shoulders pattern on WTI.
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