9 Oct

Why the Global Economic Mood Soured in 2018

WRITTEN BY Mohit Oberoi, CFA

Global economic mood

Towards the end of 2017, the term “synchronized global growth” cropped up. Markets started to price strong global growth in 2018. Metals were at the forefront in this synchronized growth story. Copper, an indicator of global economic activity, rallied almost 8% in December 2017 and ended the year with 31.3% gains. Freeport-McMoRan (FCX), the leading US-based copper miner, also rallied sharply last year.

Why the Global Economic Mood Soured in 2018

From boom to bust

Earlier in 2018, the IMF raised its 2018 global economic growth forecast to 3.9% from 3.8%. The IMF emphasized that the growth was “the broadest synchronized global growth upsurge since 2010.” In July, while the IMF maintained its economic growth forecast, it said, “the expansion is becoming less even, and risks to the outlook are mounting. The rate of expansion appears to have peaked in some major economies and growth has become less synchronized.”

Forecast lowered

Now, the IMF has lowered its global growth forecast for 2018 and 2019 from 3.9% to 3.7%. Quoting IMF chief economist Maurice Obstfeld’s statement, Reuters said, “Notwithstanding the present demand momentum, we have downgraded our 2019 U.S. growth forecast owing to the recently enacted tariffs on a wide range of imports from China and China’s retaliation.” The IMF lowered its 2019 US (QQQ) growth forecast from 2.7% to 2.5%. The IMF lowered China’s (FXI) growth forecast from 6.4% to 6.2%.

Notably, President Trump’s tariffs have faced resistance from companies like Walmart (WMT) and Alphabet (GOOG). Meanwhile, Chinese state media has called for a bigger stimulus to support the economy.

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