Tag: IMF

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IMF cuts China’s growth as property market concerns grow

China growth at risk

The International Monetary Fund (IMF) has issued a warning about the potential decline of China’s property market while reducing its growth forecast for the world’s second-largest economy.

In a report published Tuesday, The IMF has reduced its growth forecast for China this year to 4.8%, which is 0.2 percentage points below its July projection. For 2025, the IMF reportedly anticipates growth to be at 4.5%.

The IMF has pointed out that the unexpected contraction of China’s property sector is among several factors posing risks to the global economic outlook.

‘The real estate market could face worsening conditions, potentially leading to further price declines amid a drop in sales and investment’, the report indicated.

The report referenced past property crises in countries such as Japan in the 1990s and the U.S. in 2008, suggesting that if China’s situation is not managed, property prices may fall even more.

According to the IMF‘s World Economic Outlook, this could undermine consumer confidence, leading to lower household spending and domestic demand.

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IMF upgrades China’s growth forecast to 5%

China GDP

On Wednesday 29th May 2024, the International Monetary Fund increased its projection for China’s economic growth this year to 5% from the previous 4.6%, citing robust first-quarter figures and recent policy actions.

This revision reportedly came after the IMF’s routine evaluation visit to China. The institution now predicts that China’s economy will expand by 4.5% in 2025, an increase from the earlier estimate of 4.1%.

However, by 2029, the IMF expects China’s growth to slow to 3.3%, influenced by an aging demographic and a decline in productivity growth. This is a decrease from the previous medium-term growth forecast of 3.5%.

China’s economy experienced a stronger-than-anticipated growth of 5.3% in the Q1, bolstered by robust exports. Meanwhile, April’s data indicated that consumer spending continued to be weak, although there was a resurgence in industrial activity.

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IMF recommends UK interest rates should be cut to 3.5% by end of 2025

UK Charts

The International Monetary Fund (IMF) advises that the Bank of England should contemplate reducing its interest rates to 3.5% by the end of 2025.

This suggestion is made as the UK’s economy steadily recovers from the recession caused by the pandemic, while policymakers are dealing with inflationary challenges.

The ‘thinking’ behind the recommendation

Economic Recovery and Inflation Outlook

The IMF’s recommendation is grounded in its assessment of the UK’s economic trajectory.

Growth Forecast

The International Monetary Fund has upgraded its growth forecast for the UK in 2024, signaling a positive outlook. It anticipates growth of 0.7% this year and 1.5% in 2025.

Inflation

The IMF anticipates that UK inflation will decline to near the Bank of England’s target of 2% and stabilise at this rate in early 2025, indicating that inflationary pressures are within manageable limits.

Soft Landing

The UK economy is said to be approaching a ‘soft landing‘ following the mild recession of the previous year. Policymakers are focused on finding a balance between fostering growth and managing inflation.

Monetary Policy Considerations

The Bank of England’s Monetary Policy Committee (MPC) has been closely monitoring economic indicators and inflation trends. Here’s why the IMF’s recommendation matters:

Interest Rate Peaks

The Monetary Policy Committee has indicated that interest rates might have reached their peak. The current restrictive monetary policy is having an impact on the actual economy and the dynamics of inflation.

Market Expectations

Analysts anticipate the first interest rate cut by September 2024 at the latest. Market expectations align with this projection, with the base interest rate likely to be lowered to 4% by the end of 2025.

Balancing Act

Policymakers face the delicate task of supporting economic recovery while preventing runaway inflation. The IMF’s suggestion aims to strike this balance.

Implications for Borrowers and Savers

Mortgage Holders

Variable Rate Mortgages

If you have a variable rate mortgage, a rate cut could reduce your monthly payments. However, keep an eye on your lender’s response to any rate changes.

Fixed Rate Mortgages

Fixed-rate borrowers won’t immediately benefit from rate cuts, but they should still monitor the situation. If rates continue to fall, refinancing might become attractive.

Savers

Savings Accounts

Lower interest rates typically lead to diminished returns on savings accounts. It may be wise to diversify your investments to seek potentially higher yields in other areas.

Fixed-Term Deposit

Current fixed-term deposits will remain unaffected; however, new deposits might generate lower yields. It is advisable to carefully assess your alternatives.

Conclusion

The IMF’s recommendation highlights the intricate balance between fostering economic recovery and managing inflation. As the Bank of England considers its next steps, it is crucial for borrowers and savers to remain informed and adjust their financial strategies as needed.

For homeowners, investors, and savers alike, grasping the potential consequences of rate cuts is key to making well-informed choices in an ever-changing economic environment.

Disclaimer: The information provided here is based on current projections and should not be considered financial advice. It is not given as financial advice – it is for discussion and analysis only!

Consult a professional advisor for personalised recommendations.

Remember – always do your careful research first!

RESEARCH! RESEARCH! RESEARCH!

Update

The Bank of England has given its strongest hint yet that interest rates could be cut this summer. This comment was observed in a recent speech given by the deputy governor of the Bank of England.

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IMF warns U.S. and China trade divisions threaten a ‘reversal’ for global economy

U.S. & China trade tensions

Tensions between Washington and Beijing have intensified, with the U.S. ramping up trade restrictions and sanctions on China due to national security concerns.

Since Ukraine’s invasion, there has been a roughly 12% drop in trade between the blocs, and foreign direct investments have decreased by 20% compared to those within the bloc’s constituents.

If these divisions persist, the IMF forecasts that the economic impact on global GDP could be as high as 7% in the worst-case scenario.

A senior International Monetary Fund official cautioned on Tuesday, 7th May 2024, that the rift between the U.S. led Western and China-aligned economic blocs endangers global trade cooperation and economic growth.

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WEF president warns about global debt levels

Global debt burden

Borge Brende, the president of the World Economic Forum (WEF), recently issued a stark warning about global debt levels.

Speaking at the ‘Special Meeting on Global Collaboration, Growth and Energy for Development‘ in Riyadh, Saudi Arabia, (see WEF website), he highlighted that global debt ratios are approaching levels not seen since the 1820s.

The WEF president also reportedly emphasized the risk of ‘stagflation‘ for advanced economies. He cautioned that without appropriate economic measures, the world could face a decade of low growth.

The current global growth estimate stands at around 3.2%, down from the 4% trend growth seen for decades. Brende urged governments to address the mounting debt situation and implement prudent fiscal measures to avoid triggering a global recession. 

He also noted the persistence of inflationary pressures and suggested that generative artificial intelligence could offer opportunities for developing nations. The International Monetary Fund (IMF) concurs with this concern, reporting that global public debt reached 93% of GDP last year, still 9% higher than pre-pandemic levels. 

The IMF projects that global public debt could approach 100% of GDP by the end of the decade.

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IMF says Russia is expected to grow faster than all advanced economies in 2024

Oil

The International Monetary Fund calculates that Russia’s economy will expand more rapidly than all advanced economies this year.

According to the latest World Economic Outlook released by the IMF, Russia’s economy is projected to expand by 3.2% in 2024.

This growth outpaces the anticipated growth rates for the U.S. at 2.7%, the U.K. at 0.5%, Germany at 0.2%, and France at 0.7%.

G7 growth percentages

  • Russia at 3.2%
  • U.S. at 2.7%
  • France at 0.7%
  • U.K. at 0.5%
  • Germany at 0.2%

The forecast may be galling for Western countries that have endeavoured to economically isolate, restrict and punish Russia for its invasion of Ukraine in 2022.

Russia has demonstrated that Western sanctions on its industries have made it more self-sufficient and that private consumption and domestic investment remain resilient.

Oil exports

Oil and commodity exports to nations such as India and China, (two of the largest countries in the world by population) – as well as alleged sanction evasion and high oil prices, have allowed Russia to maintain strong oil export incomes streams.

UK and Europe growth

Outside of Russia, the IMF has revised its forecasts for Europe and the UK, projecting a growth of 0.5% for this year. This positions the UK as the second-lowest performer within the G7 group of advanced economies, trailing behind Germany.

The G7 also includes France, Italy, Japan, Canada and the U.S.

However, UK growth is expected to improve to 1.5% in 2025, placing the UK in the top three best G7 performers, according to the IMF.

The IMF also reported said that interest rates in the UK will remain higher than other advanced nations, close to 4% until 2029.

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IMF says now is the time for central bank digital currencies

Central Bank digital money to replace cash

IMF’s Kristalina Georgieva reportedly said that the public sector should keep preparing to deploy central bank digital currencies (CBDC’s) and related payment platforms in the future.

But according to data from the Atlantic Council, only 11 countries have adopted CDBC’s thus far.

Alternative to cash

Central bank digital currencies (CBDC’s) have the potential to replace cash. But adoption could take time, said Kristalina Georgieva, managing director of the International Monetary Fund on Wednesday 15th November 2023.

‘CBDC’s can replace cash which is costly to distribute”, she is reported to have said at the Singapore FinTech event. ‘They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts’.

‘CBDC’s would offer a safe and low-cost alternative to cash. They would also offer a bridge between private monies and a yardstick to measure their value, just like cash today which we can withdraw from our banks’, the IMF chief reportedly said.

Fiat currency

CBDC’s are the digital form of a country’s fiat currency, which are regulated by the country’s central bank. They are powered by blockchain technology, allowing central banks to channel government payments directly to households.

Central Bank digital money to replace cash. IMF’s Kristalina Georgieva reportedly said that the public sector should keep preparing to deploy central bank digital currencies (CBDC’s) and related payment platforms in the future.

The IMF has indicated that more than 100 countries are exploring CBDC’s – that’s approximately 60% of countries in the world.

‘The level of global interest in CBDCs is unprecedented. Several central banks have already launched pilots or even issued a CBDC’, the IMF said in a September 2023 report.

According to a 2022 survey conducted by the Bank for International Settlements, of the 86 central banks surveyed, 93% said they were exploring CBDCs, while 58% said they were likely to or may possibly issue a retail CBDC in either the short or medium term.

But as of June 2023, only 11 countries had adopted CBDC’s, with an additional 53 in advanced planning stages and 46 researching, according to data from the Atlantic Council.

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Argentina inflation nearly 140%

Inflation 140% in Argentina

The inflation rate in Argentina is extremely high and has surpassed 100% for the first time since the early 1990’s. The inflation rate for consumer prices in Argentina was 138.28% in September 2023, based on the CPI values for the last 12 months.

This means that the prices of many goods and services have more than doubled since 2022. The main factors that contributed to this increase were the rise in food prices, especially meat, due to adverse weather conditions and a drought, as well as the economic difficulties and policy divisions that have plagued the country for years. 

Argentina has been receiving bailout funds from the International Monetary Fund (IMF), but it has not been able to contain inflation, which has eroded the purchasing power of many people and pushed them into poverty.

The inflation rate in Argentina is one of the highest in the world and has a negative impact on its economic growth and social stability.

Map of Argentina

Map of Argentina

Argentina is the second largest country in South America, the fourth largest in the Americas, and the eighth largest in the world.

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IMF and UK interest and inflation fears

6% UK interest rate IMFprediction

The International Monetary Fund (IMF) is an international organization that monitors the health of the global economy and provides financial assistance to countries in need.

UK interest rate warning from the IMF

  • The IMF has warned that the UK faces another five years of high interest rates to stem rising prices, which have been falling but remain stubbornly above target.
  • The IMF expects the UK to have the highest inflation and slowest growth next year of any G7 economies, which includes the US, France, Germany, Canada, Italy and Japan.
  • The IMF says the UK’s immediate prospects are being weighed down by the need to keep interest rates high to control inflation, which is partly caused by the terms-of-trade shock from high energy prices, the aftereffects of the global pandemic, Brexit fallout and the Russia/Ukraine war.

Peak at 6%!

The IMF believes Bank of England rates will peak at 6% and stay around 5% until 2028. Rates are currently 5.25%.