IMF: Risk to Global Economy Still Tilted to the Downside
In its October “World Economic Outlook” report, the International Monetary Fund or IMF also listed risks to its forecasts. The IMF said the risks to the global growth forecast are broadly balanced, but there are a few risks that could tilt the scale to the downside. Here are some immediate-term risks to the global economy.
- policy uncertainty, especially in US (SPY) regulatory and fiscal policies
- negotiations of the UK (EWU) relationship with the US
- increased likelihood of inward-looking policies that could increase financial market (QQQ) volatility (VXX)
- geopolitical risks.
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Longer-term risks to the global economy
The IMF highlighted that long-term risks are skewed to the downside and include economic and noneconomic factors. A broad list of these long-term risks includes:
- financial stability risks arising out of China
- the tightening of the global financial conditions as leading central banks move toward policy normalization
- risks from the reversal of capital flows—the kind we saw during the “taper tantrum”
- capitalization issues faced by the Eurozone banking system
- non-economic risks including geopolitical risk and increasing protectionism from developed economies
Probability of recession next quarter
The IMF said the probability of a recession in the next four quarters, compared to the March 2017 report, has fallen for the Eurozone, Japan (EWJ), and Latin American countries, and recession risks to all other countries remain unchanged.
The global economy is expected to continue its growth path in the immediate term, but there are a few challenges to achieve sustainable growth in the long term. The next update to the WEO is slated for January 2018.