Last week the International Monetary Fund (IMF) cut its growth forecasts for the global economy for this year and next. The GB pound has continued to fall on currency markets as the government insists that the UK may leave with a no deal Brexit. This led sterling to hit a fresh two-year low earlier this week. In the US, the Federal Reserve is expected to cut rates today for the first time since 2008.
Global growth forecast cut by IMF
The IMF predicts growth of 3.2% in 2019, down from 3.3% forecast in April. Growth for 2020 is set to rise to 3.5% next year, down from the earlier forecast of 3.6%. The IMF blamed the subdued growth on the urgent need to reduce trade and technology tensions, according to a report by the BBC. The IMF stated “The principal risk factor to the global economy is that adverse developments – including further US-China tariffs, US auto tariffs, or a no-deal Brexit – sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline.”
Pre-Brexit stockpiling boosts growth forecast but no-deal tanks pound
The IMF raised its growth forecast for the UK this year to 1.3% from 1.2%. This revision results from the stronger than anticipated growth in the first quarter, boosted by pre-Brexit stockpiling. For 2020, the IMF predicts 1.4% growth for the UK. This forecast assumes an orderly Brexit characterised by gradual transition. The nature of the process, however, remains highly uncertain.
This uncertainty, coupled with government insistence that the UK may leave with a ‘no-deal’ Brexit, has caused the GB Pound to fall. Sterling hit a fresh two-year low of $1.2120 against the US dollar this week.
US growth slows but rate cut expected
The US economy grew less than previously thought during 2018, revised figures show GDP increased by 2.5%. This is less that President Trump’s target of 3%. The figures also revealed that growth slowed during the second quarter as exports declined and there was less investment.
The US central bank is expected to cut rates today for the first time since 2008. Traders are expecting a 0.25% cut, taking the federal funds target range to 2-2.25%. Supporters of the cut say it will spur a US economy showing signs of needing help.