| | | Emerging Markets Will Be Key Drivers of Global Growth
The IMF’s 5-nation growth lineup is especially positive about India and Brazil.
By DIMITRA DEFOTIS
October 14, 2017
The market already knew, but the International Monetary Fund confirmed it last week: Global growth is on track and many developing countries are fueling the economic expansion.
The IMF expects global growth of 3.6% in 2017, and 3.7% in 2018, a very slight upward revision from its July forecast. For developing economies, the IMF maintained its 4.6% GDP growth estimate for 2017, but raised it by a tenth of a point to 4.9% for 2018.
The IMF’s assumptions are, in general, good for emerging markets. Those include generally higher commodity prices next year, but a relatively flat $50-per-barrel oil price this year and next. The IMF also assumes a gradual normalization of the policy interest rate in the U.S., a slightly weaker U.S. dollar, and no U.S. tax cuts—to President Donald Trump’s consternation. The report notes risks to the rosy outlook, including debt, a shift by central banks away from monetary stimulus, and weak profitability at a third of the world’s systemically important banks, which represent $17 trillion in assets.
Here’s the IMF’s outlook for some of the largest emerging economies:
China (2017 GDP growth, 6.8%; 2018, 6.5%): The IMF raised its growth estimates by a small amount for each year, saying China is benefiting from recovering demand for its exports. Domestically, the economic refocus on services and consumption is likely to bear fruit, but the IMF warned that Chinese authorities must accelerate their efforts to curb the expansion of credit to avoid “a sharp growth slowdown in China, with adverse international repercussions.”
Brazil (2017 GDP growth, 0.7%; 2018, 1.5%): The supranational agency more than doubled its growth estimate for this year and raised it for next year. It noted that the beleaguered nation should benefit from strong export growth and benign inflation. Each has helped to reverse a stubborn recession, exacerbated by corruption and political scandals that continue to unfold.
India (2017 GDP growth, 6.7%; 2018, 7.4%): The IMF moderated its estimate a bit for 2017, and cut still further for 2018 as a new national goods-and-services tax adds to the lingering negative impact of the government’s November 2016 currency demonetization. While inflation is tame and India benefits from lower prices for commodity imports, the IMF attributed the lower forecasts to India’s uneven transition from a cash-based society to one being pushed toward digital banking and mobile payments. But the IMF said these changes will ultimately help India’s economy expand at an 8% pace “in the medium term.”
Russia (2017 GDP growth, 1.8%; 2018, 1.6%): With the economy healthier than expected after two years of recession, thanks to recovering demand and lower inflation, the IMF raised Russia’s growth estimate for both years. Stable oil prices have helped the recovery, but Russia will need them to rise well above $50 per barrel to accelerate economic growth.
South Africa (2017 GDP growth, 0.7%; 2018, 1.1%): Because allegations of influence peddling have weakened the ruling African National Congress party and sapped consumer and business confidence, the IMF shaved its growth outlook for both years. The party’s December elections will determine the favorite to replace President Jacob Zuma in 2019.
The mostly encouraging outlook helped lift the iShares MSCI Emerging Marketexchange-traded fund (ticker: EEM) to another 52-week high. |
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