IMF Meetings Takeaways – Deutsche Bank
Research Team at Deutsche Bank, lists down the key takeaways from the most recent IMF meeting.
“Slowing growth momentum, particularly in China, EU, Japan, and the US, is seen as fait accompli. While there is some marginal optimism about the service sector in China and labor market in the US, the consensus view appears to be that there is little upside to global growth this year. While the IMF sees some upside to China’s near-term growth outlook, it has scaled back its global growth projection for 2016 to 3.2% (20bps lower than the previous projection).
Indeed, the global growth outlook for the rest of the decade is subdued. Factors such as economic rebalancing, aging, disruptive technologies, trade stagnation, and rising inequality are seen as brakes to growth in the near and medium term. There is however optimism about some EM economies as they adjust to terms of trade shocks and political changes. After several years of exchange rate correction and deleveraging, some commodity producers appear to have fully priced in the downside, with the balance of risks improving.
With no emerging or developed economy capable of supplanting the slowing of demand in China, EU, Japan, and the US, there is a sense of resignation that further monetary easing has vastly diminished utility; there is also little appetite for major fiscal intervention. There was the usual discussion on the need for structural reforms and economic recalibration to at least create room for better quality growth, but generally speaking, there was a striking dearth of fresh or galvanizing policy prescription.
On global factors, NPLs and financials’ structural profitability issues in the EM were popular. As profitability and inflation are highly correlated, the limitations of monetary policy and the need of a different - more powerful - policy mix were in focus. On oil, low-for-long and the fact that commodity sectors account for a large share of expenditures (when commodities and materials are combined) underpinned the bearish view on investment over the next couple of years – at least.”