World Growth To Fal By 4.9%

The International Monetary Fund updated its global economic projections this week and the report has added to the bearish sentiment which has stifled markets over the last few days. In its latest outlook, the IMF now forecasts the global economy to shrink by 4.9% this year, marking a significant deterioration from the 3% contraction forecast in the last update in spring. Following this year’s contraction, the IMF then predicts that growth will rebound to 5.4% in 2021, marking a 0.4% downward revision from the last forecast.

In the report, the IMF noted “The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated and the recovery is projected to be more gradual than previously forecast.”

In the US, the IMF now forecasts growth to contract by 8% over the year, marking a 2% downward revision since the last forecast with only a 4.5% rebound forecast next year. Of all the countries listed in the report, China is the only major economy which the IMF forecasts to still experience growth this year.

UK & Eurozone To Suffer

The UK is set to see one of the largest negative impacts with the IMF now forecasting a -10.2% growth reading this year, down 3.7% from the April forecast, before seeing a 6.3% recovery next year. Similarly, the Eurozone is also forecast to see a 10.2% contraction in growth this year as a result of the COVID-19 disruption, marking a 2.7% downward revision from the last update.

The report also noted the high level of uncertainty in the outlook which could worsen further should another outbreak of the virus occur within the horizon timeframe. The IMF called on the need for global efforts to help combat the negative impact of the virus with global trade forecast to fall by 11.9% this year. The IMF noted that $10.7 trillion in fiscal measures have been announced and warned that “more will be needed”. Worldwide, the IMF noted that around 130 million full time jobs have been lost in Q1 with around 300 million lost in Q2.

Disconnect Between Markets & Economies

Interestingly, in a potential warning to investors, the IMF noted that the “recent rebound in financial-market sentiment appears disconnected from shifts in underlying economic prospects”. Equities markets have seen a strong recovery over the last two months and many are wondering whether the rally can continue given the strong, negative warnings we have heard from central banks in recent weeks and now the IMF also. With fears of a second wave of the virus building, the downside risks appear to be growing.

Technical Views

DOW (Bullish above 24579)

From a technical viewpoint. The DOW JONES continues to hold the rising trend line from 2020 lows following the recovery off the monthly/yearly pivot around 24579. While this level remains as support, the near-term bias stays bullish. However, a failure to breach the 27094 level raises risks of a deeper correction with the monthly S1 at 23546 the next downside level to note.

IMF Slashes Global Growth Forecasts in 2020 & 2021

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