- Global 2013 Growth estimates lowered to 3.1% vs. 3.3% (Apr)
- Global 2014 Growth estimates lowered to 3.8% vs. 4.0% (Apr)
- Advanced Economies 2013 Growth estimates lowered to 1.2% vs. 1.3% (Apr)
- Emerging Market & Developing-Country 2013 Growth estimates lowered to 5.0% vs. 5.3% (Apr)
- U.S. 2013 growth estimates lowered to 1.7% vs. 1.9% (Apr)
- China 2013 growth estimate lowered to 7.8% vs. 8.1% (Apr)
- Japanese 2013 growth estimate rose to 2.0% vs. 1.5% (Apr)
- Euro-Area 2013 growth estimate lowered to -0.6% vs. -0.4% (Apr)
Speaking on one of more consistent downgrades for the developed world, IMF Chief Christine Lagarde was on the wires commenting on the troubles plaguing the Euro-area as bond yields lurched higher. Yet despite her essential approval of austerity measures in Europe, she referred to the US budget cuts as “inappropriate.” This recognition of fiscal pressure likely further contributed to the lowered growth estimates despite for the US and global assessment. A remarkable turn of events, Japan seems to be the sole benefactor from the updates thanks to the aggressive stimulus programs adopted by the Bank of Japan as well as the Japanese government’s ‘Three Arrows’ program..
And, for investors that were seeking out higher rates of returns, the emerging market was delivered a similar hit. The forecast for the general class of economy shrunk from a 5.3% 2013 outlook projected back in April to a pace of 5.0% in this update. Some of the most notable adjustments for 2013 growth estimates come from South Africa (2.0% vs. 2.8% in April), Mexico (2.9% vs. 3.4% in April), and Russia (2.5% vs. 3.4% in April).
The downgrade in growth forecasts seems disparagingly uniform. Part of this no doubt relates to the fading market confidence in response to the Fed taper talks. The threat of tempered support by the world’s largest central bank is spooking world markets and sending bond yields while simultaneously guiding capital out of risky positions and leverage. Alongside this US concern, China’s credit bubbles and the constant threat of a return to crisis for Europe presents a constant risk of turning concern of a slower pace of growth into fear of financial instability as capital flows reverse to safety.
Written by John Kicklighter, Chief Strategist for DailyFX.com
Written by Gregory Marks, DailyFX Research Team