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IMF Raises Global Forecast

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  • IMF Raises Global Forecast

The emergence of protectionist forces could undermine a modest brightening of the global growth outlook and is putting severe strain on the post-World War II economic order, the International Monetary Fund said.

The IMF raised its forecast for global growth to 3.5 percent this year, up 0.1 percentage point from January, the Washington-based fund said in the latest update to its World Economic Outlook. Expansion will pick up to 3.6 percent in 2018, unchanged from the projection three months ago. The upgrade offers a glimmer of optimism following a trend in recent years of the fund downgrading its growth forecasts.

The pickup is being fueled by “buoyant” financial markets and a long-awaited cyclical recovery in manufacturing and trade, the IMF said. Still, global growth remains subdued compared with past decades, and the risk of “trade warfare” is still hanging over the world economy, IMF chief economist Maurice Obstfeld warned.

“The global economy seems to be gaining momentum — we could be at a turning point,” Obstfeld said in a foreword to the outlook. However, “the post-World War II system of international economic relations is under severe strain despite the aggregate benefits it has delivered — and precisely because growth and the resulting economic adjustments have too often entailed unequal rewards,” he added.

The sunnier outlook will hearten finance ministers and central bankers from the IMF’s 189 member countries as they meet this week in Washington for the fund’s annual spring meetings. In an interview last week with Bloomberg Television, Christine Lagarde said “we see spring in the air of the global economy.”

Trade Talk

It will be the first spring meetings in Washington since the inauguration of U.S. President Donald Trump, who has promised to take an “America First” approach to foreign policy. After Trump declined last week to follow through on his campaign promise to brand China a currency manipulator, policy makers will be watching closely to see if his administration is backing down from its most hawkish trade threats, or merely picking its battles.

The IMF left its U.S. forecast unchanged for this year and next, at 2.3 percent and 2.5 percent respectively, after raising its projections in January on Trump’s plan to cut taxes and boost infrastructure spending.

The fund sees the U.K. economy expanding by 2 percent this year, up from a projection of 1.5 percent seen in January, before slowing to 1.5 percent in 2018. The British economy has performed stronger-than-expected since the 2016 Brexit referendum, indicating “a more gradual materialization than previously anticipated of the negative effects” from the decision.

The IMF bumped up its estimate for Japanese growth to 1.2 percent this year, an increase of 0.4 percentage point from three months ago. Japan’s growth is being driven by a jump in net exports that’s expected to continue in 2017, the IMF said.

Mild Bump

In the euro area, a mild boost from fiscal policy, easy financial conditions and a weaker currency are boosting growth, which is expected at 1.7 percent in 2017, up 0.1 percentage point from January, according to the fund.

The IMF also raised its growth forecasts for China to 6.6 percent this year and 6.2 percent in 2018.

The fund left unchanged its overall projections for growth in emerging markets and developing economies. Conditions for resource exporters are gradually expected to improve, supported by recovering prices for oil and other commodities, the IMF said.

Nevertheless, the fund downgraded its outlook for the Middle East and sub-Saharan Africa, two regions heavily dependent on natural resources.

The IMF was conceived during World War II to oversee the global monetary system and promote open markets after countries resolved to avoid the beggar-thy-neighbor policies that followed the Great Depression.

But Trump and other nationalist politicians have expressed doubt about the existing system and multilateral institutions such as the IMF. National Front leader Marine Le Pen, who wants to pull France out of the euro, is polling strongly ahead of this month’s presidential election, though she’s an underdog to win a runoff vote next month.

“A distinct set of threats comes from the growth in advanced economies of domestic political movements skeptical of international economic integration — no matter if integration is promoted through multilateral rules-based systems for the governance of trade, more ambitious regional arrangements such as the euro area and European Union, or globally agreed standards for financial regulation,” Obstfeld said in prepared remarks to be delivered Tuesday in Washington.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Oil Prices Decline on Rising India COVID-19 Cases, U.S Inflation Concerns

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Global oil prices extended a decline on Friday following a 3 percent drop on Thursday as coronavirus cases rose in India, one of the world’s largest oil consumers.

Brent crude oil, against which Nigerian oil is priced, declined by 35 cents or 0.5 percent to $66.70 a barrel at 5 am Nigerian time on Tuesday while the U.S West Texas Intermediate (WTI) fell by 28 cents or 0.4 percent to $63.54 per barrel.

The commodity super cycle rally just hit a hard stop and the energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA.

The crude demand story is still upbeat for the second half of the year and that should prevent any significant dips in oil prices,” he added.

Prices dropped over a series of key economic data that stoke inflation concerns and forced experts to start thinking the Federal Reserve could raise interest rates to curb the surge in inflation.

An increase in interest rates typically boosts the U.S. dollar, which in turn pressures oil prices because it makes crude oil more expensive for holders of other currencies.

This coupled with the fact that India, the world’s third-largest oil consumer, recorded more than 4,000 COVID-19 deaths for a second straight day on Thursday, dragged on the oil outlook in the near term.

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Brent Crude Rises to $69 on IEA Report

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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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