Slowing Global Growth: Time to Invest in Advanced Economies?



A double-track world economy

In a July update to its “World Economic Outlook,” the IMF (International Monetary Fund) expects global growth to slow more in 2015 than it had projected it would in April. Yet, it’s important to note that the world economy isn’t expected to slow down in a uniform way. Instead, the IMF expects advanced nations to experience a gradual pickup in economic growth, while emerging nations are expected to experience a slowdown.

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Advanced and emerging economies

The IMF expects advanced economies to grow by 2.1% in 2015, compared to 1.8% in 2014. The forecast has been revised downward by 0.3% from the April forecast because of unanticipated weakness in North America, which accounts for the bulk of economic growth among developed nations. Meanwhile, the IMF believes that this slowdown in North America is only temporary.

Economic growth in emerging markets and developing economies is projected to slow down to 4.2% in 2015, compared to 4.6% in 2014. The projection for 2015 is 0.1% lower than it was in the April outlook. Commodity prices are expected to take a toll on these nations.

What can you do?

It’s time to review your investments in advanced economies, if you haven’t already done so. Emerging market equities have been favorable for some time. But if economic growth in these areas is expected to slow down, stocks such as China Mobile (CHL), China Life Insurance Co. (LFC), and Banco Santander (BSBR) from Brazil will also be affected.

You may consider paring down your emerging market exposure with ETFs such as the iShares MSCI Emerging Markets (EEM) and the Schwab Emerging Markets Equity ETF (SCHE).

With economic activity expected to pick up in the US, and output gaining in Europe, you may consider investing in these areas with ETFs such as the Vanguard Total World Stock ETF (VT).

In the next article, we’ll look more closely at the IMF’s projections for North American economies.


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