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IMF growth downgrades weigh on sentiment - Deutsche Bank

FXStreet (Łódź) - Jim Reid from Deutsche Bank comments on the IMF's decision to cut the global growth forecast to 3.3% for 2014 and to 3.8% for 2015.

Key quotes

"These forecast cuts were made on the back of a weaker than expected start to the year by advanced economies and a weaker outlook for a number of EM economies."

"Beyond the weakening of growth expectations, the other big story from the IMF’s latest report is their view that economic developments are becoming more differentiated across economies, with different nation’s recoveries increasingly reflecting country-specific factors."

"Thus the IMF’s view of higher global growth in 2015 compared to 2014 reflects their view of a stronger US economy (which they forecast to grow by 2.2% this year and 3.1% next year) and a steady (if weak) European recovery offsetting a 0.3% point slowdown in China (where they forecast growth will drop from 7.4% this year to 7.1% next year)."

"Looking through the latest report, two things stand out to us."

"First is that the US economy is expected to do a lot of heavy lifting next year if global economic activity is to pick up. Can they prosper while others stall?"

"And second is that the IMF (and many other official agencies) have continued to be over-optimistic on growth - yesterday’s forecast was the 9th time in the past 12 forecasts (stretching over three years) that the IMF have marked down their current year growth forecast."

"So this latest downgrade shouldn't be a surprise but maybe we come back to the fact that this forecast is coming in a period where a lack of US QE is helping focus us on the fluctuating fundamentals more again. Incidentally the IMF talked about frothy equity valuations which didn't help the mood."

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