The IMF (International Monetary Fund) staff expects advanced economies to rise modestly later in 2015 and carry similar momentum into 2016.
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The agency’s staff thinks that the recent fall in crude oil prices (USO) should provide a boost to advanced economies because consumers would have more money to spend on other avenues. However, the IMF staff also noted that a fall in oil prices earlier in 2015 failed to elicit the desired response from consumers. For instance, even though the prices of New York Harbor conventional gasoline fell to $1.283 per gallon, consumers continued to give department stores like JCPenney (JCP), Macy’s (M), and Nordstrom (JWN) a miss earlier in 2015.
The IMF staff also noted that although the labor market situation has improved, productivity growth remains weak. This raises concerns about medium-term economic growth in advanced nations.
Although the weakness in crude oil prices is expected to keep the capex in the energy sector in check, the US economy is expected to rise moderately due to companies’ improved balance sheets in other sectors. Recently, the housing market (PHM) (DHI) has improved. This indicates the underlying strength in the US economy.
The IMF staff expects these factors to overcome the strong dollar that has been impacting exports.
A weak euro and suppressed crude oil prices are expected to help the Eurozone (HEDJ) continue its economic recovery at a moderate pace. Although large economies like Germany, Spain, France, and Italy are expected to witness a rise in economic growth, Greece’s outlook remains uncertain.
As we noted in Part 2 of this series, Japan’s economic contraction in 2Q15 was lower than initially estimated. A rise in real wages, lower commodity prices, and continued and even enhanced monetary easing is expected to bring Japan (DXJ) back to the growth path after its economy contracted by 0.10% in 2014.
In the next part in this series, we’ll look at the IMF staff’s outlook for emerging economies.