Further Tilt To The Downside In WEO Script

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Wednesday, July 24, 2019  / 09:05AM / By FBNQuest Research/ Header Image Credit: 

                                                                             

The IMF’s latest World Economic Outlook (WEO) has trimmed its global growth forecasts for this year and next from 3.3% and 3.6% to 3.2% and 3.5% respectively. The only sizeable upward revision is from 2.3% to 2.6% for this year for the US. Among the downward revisions for 2019 of at least 20bps since April, we highlight Brazil (from 2.1% to 0.8%), Russia, India and South Africa (from 1.2% to 0.7%). These are substantial adjustments, which prompt questions about the quality of data in several countries and/or the broader skills of the forecasting community. 

Downside risks have increased in the past three months in the IMF world view. Whereas in April the projected pick-up in 2020 was based upon policy accommodation in advanced economies and a stimulus in China in H2 2019, now it hinges more upon an easing of financial stress in emerging market and developing economies (EMDEs), and of global trade tensions. 

The outlook makes the point that the services sector has emerged as the “silver lining” while manufacturing has struggled since early 2018 in the face of weak capital investment by business and subdued consumer spending on durables. Nigeria is predominantly a services economy too, and we noted that 10 out of 13 segments in services expanded in Q1 2019 (Good Morning Nigeria, 23 May 2019).

The assumptions, based on the futures markets, for the Fund’s basket of three crude blends (including UK Brent) are now declines of -4.1% this year to US$65.5/b and of -2.1% for 2020 to US$63.9/b. These numbers broadly chime with our current expectations.

 

Trends in world output growth (% chg y/y)

 

 

2018

2019F

2020F

World

3.6

3.2

3.5

US

2.9

2.6

1.9

Eurozone

1.9

1.3

1.6

Japan

0.8

0.9

0.4

Brazil

1.1

0.8

2.4

Russia

2.3

1.2

1.9

India

6.8

7.0

7.2

China

6.6

6.2

6.0

SSA

3.1

3.4

3.6

Nigeria

1.9

2.3

2.6

South Africa

0.8

0.7

1.1

 

F=forecasts

Sources: IMF, World Economic Outlook Update, July 2019; FBNQuest Capital Research

 

The WEO has upped its growth projections for Nigeria for this year and next to 2.3% and 2.6% from 2.1% and 2.5%, based it would appear on oil price movements. Our forecasts remain 2.6% and 2.8%.

 

Proshare Nigeria Pvt. Ltd.


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