IMF Cautions About Global Vulnerabilities

The International Monetary Fund has warned that the global economy is currently “highly vulnerable to adverse shocks”. Probably, a key factor in this assessment is the very jittery nature of the investment community which has greeted the New Year as there has been no single, unexpected factor which explains current volatility: we have nothing to fear, but fear itself!

Global demand has been anemic ever since the Global Financial Crisis abated (has it ever truly abated?). The slowing of the Chinese economy can hardly have come as a surprise to anybody, but if the growth figures are to be believed, even at a slowing pace China’s economic growth is staggering by comparison to its global peers. The collapse in the oil price was a genuine shock that few saw over the horizon, but we are well into that experience now and (with the obvious exceptions) it is to be welcomed as it provides cheaper transport and energy costs which ought to be a fillip to the global economy.

The IMF helpfully points out that the weakening of the global economy comes “amid increasing financial turbulence and falling asset prices” – but then that’s what always happens when confidence goes AWOL; by definition. The IMF continued: “Growth in advanced economies is modest already under the baseline, as low demand in some countries and a broad-based weakening of potential growth continue to hold back the recovery. Adding to these headwinds are concerns about the global impact of China’s transition to more balanced growth, along with signs of distress in other large emerging markets, including from falling commodity prices.”

The IMF cautioned that global growth “could be derailed by market turbulence, the oil price crash and geopolitical conflicts” – an asteroid strike from space might also upset things too, of course. They trimmed global growth forecasts to 3.4% for this year and 3.6% next.

The oil price crash is bad news for the oil industry and any businesses concerned with the supply chain and, to an extent, downstream (refining etc.) activities, but whilst there has been a decline in the costs of petrol, it has not reflected the fall in crude oil prices to anything like the extent. Naturally, any economy which is heavily reliant on oil revenues will be feeling the pain, but the fall in prices was triggered by the oil producing nations continuing to maintain output at a time of weakening demand, partially in a bid to choke off US shale oil production.