International Monetary Fund downgrades outlook for world economy to 3.7% growth

10 October, 2018, 08:53 | Author: Eric Barnett
  • Punjab CM Usman Buzdar welcoming PM Imran Khan. — PTI

According to a media report, State Bank of Pakistan had viewed that the exchange rate of Rs137 to a dollar by the end of current fiscal year in June 2019 would be sufficient to address the challenges.

The fund left its 2018 U.S. forecast unchanged but cut its expectation for next year, citing the impact of the trade conflict.

Pakistan's government had previously said seeking help from the International Monetary Fund was the last option and would prefer succour from friendly nations, widely interpreted as a reference to traditional allies China and Saudi Arabia.

International Monetary Fund Chief economist Maurice Obstfeld said on Tuesday (Oct 9) that he was not concerned about the Chinese government's ability to defend its currency despite the recent depreciation of the yuan.

"The likelihood of further negative shocks to our growth forecast has risen", he said.

As Washington and Beijing trade tariffs, economic growth is slowing for both countries and others.

'To gauge the severity of the threats to growth, one must ask how governments could respond if risks are realised and widespread recession ensues.

Japan's benchmark Nikkei 225 fell 1.3 per cent to 23,469.39.

The IMF's cut to its outlook was broad-based. The government expected the rate to exceed 7.5 per cent this year on the back of 8.2 per cent growth rate in the first quarter.


The IMF said the balance of risks was now tilted to the downside, with a higher likelihood that financial conditions will tighten further as interest rates normalize, hurting emerging markets further at a time when US -led demand growth will start to slow as some tax cuts expire.

The IMF has revised its emerging and developing Asia growth outlook for 2019 and it was lower at 6.3 percent from 6.5 percent and 6.6 percent, respectively, in its July and April WEO report.

Pakistan's fiscal deficit was on target to hit 7.2 percent of gross domestic product in the fiscal year ending in June 2019, but the government has introduced measures to bring it closer to 5 percent.

It was now predicting 3.7 percent global growth in both 2018 and 2019, down from its July forecast of 3.9 percent growth for both years.

The IMF said it expects inflation to accelerate around the world this year, due largely to increasing commodity prices.

It cited Australia, New Zealand and Britain as countries that are taking positive steps to better manage their assets against the growth of future liabilities.

"IMF's downgrade just goes to show how the tariff dispute between US and China is beginning to take its toll on the global economy", said Peter Cardillo, chief market economist at Spartan Capital Securities in NY.

"In several key economies, moreover, growth is being supported by policies that seem unsustainable over the long term", he said.

The Pakistan Stock market PSX on Monday recorded a decline of 1,328 or 3.39 percent, the biggest in five months. "Unless growth can be made more inclusive than it has been, centrist and multilateral approaches to politics and policy will become increasingly vulnerable - to the detriment of all", Mr. Obstfeld said.

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