MNI POLICY: IMF WEO: Growth Revised Lower; Downside Risk Up

--IMF Sites Trade Policies As Key Negative Factors To The Outlook

By Kevin Kastner

     WASHINGTON (MNI) - The International Monetary Fund issued the October

update to their World Economic Outlook in Bali Tuesday morning. The update was

decidedly more negative than in the previous two reports.

     Here are the key points from October WEO update:

     -The IMF lowered the global growth pace to 3.7% for both 2018 and 2019 from

the 3.9% rates reported in the April and July WEO releases, noting that "the

balance of risks to the short-term global growth forecasts has now shifted to

the downside" and that the chance of an upside surprise has diminished.

     --The IMF noted that rising trade tensions, a move away from rules-bases

trading systems, and the expected contractionary impact of an unwinding of US

fiscal policy in 2020 are key negative factors in the outlook. The IMF noted

that downward adjustments to growth were larger for countries that trade with

the US.

     --Global inflation has been lifted by energy prices, but core measures of

inflation have remained below target in a number of countries. At the same time,

global wage growth has remained modest. However, inflation surprises could lead

to faster policy tightening, particularly in the US, creating tighter financial

conditions than already exist.  

     --The WEO update left the forecast for US growth at 2.9% for 2018, but

lowered their forecast for growth in 2019 to 2.5% from the 2.7% rate reported in

the April and July updates. The IMF suggested noted that the stimulative fiscal

policy measures that have boosted US growth and trimmed unemployment in 2018

will have a neutral impact in 2019 before being a drag on growth in 2020 and

beyond. The IMF suggests raising the revenue-to-GDP ratio through indirect

taxes.

     --The WEO suggests that the Federal Reserve should continue to gradually

tighten rates as US growth remains solid and the unemployment rate is at

decades-low levels, while acknowledging that the fiscal stimulus in an

already-strong US economy places increased burdens on the Fed to keep the

economy from overheating. The IMF forecasts an additional rate hike in 2018 and

four rate hikes in 2019, with the Fed Funds rate reaching 3.5% at the end of

2019.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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