The International Monetary Fund released its Global Economic Outlook Report with a growth expectation for 2014 of 3.3% and a forecast of world growth of 3.8% for 2015, this is a reduction to the previous forecast which was set at 4% for 2015, also stating that these figures may even still be too optimistic.
The IMF explained that ‘the pace of the global recovery has disappointed in recent years’. They warn that the world economy may never return to the strength seen prior to the global financial crisis. “With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialise or fall short of expectation.”
The IMF’s Economic counsellor Oliver Blanchard believes that the three main risks are that the financial market is too complacent, the tensions in Russia and Ukraine and the recession in Euro-zone with high possibility of deflation.
Wednesday saw the Australian Dollar lose ground against the US Dollar. After the IMF’s reduction to growth forecast, commodities immediately experienced the impact. Copper, in particular, dropped to below $3 a pound.
Market Strategist Karyn Cavanaugh explained that ‘people get worried when they hear the IMF talk about growth prospects around the world falling’.
Early today though saw the Australian Dollar bound back against the US Dollar, hitting the highest level seen for two weeks at 88.52 US Cents. This could be contributed to the US Federal Reserve Minutes released overnight. The key point from the Minutes was that officials indicated that US Interest Rates won’t be raised ‘for a considerable time.’ The minutes indicated that the officials were still overly concerned about global slowdown and the US economic outlook.
This rally of the AUD/USD may be short lived as the unemployment data for Australia is due out at 10:30am AEST today, the projection is for the Unemployment Rate to stay stable at 6.1% however investors will look for the employment change and participation levels for an indicator of economic health which is likely to cause market volatility today.