IMF Downgrades Global Economic Outlook Again October 2015

[Lola14]

IMF Downgrades Global Economic Outlook Again
wsj.com/articles/imf-downgra … 1444140016

According to IMF reports, in October 2014, global growth for 2015 was projected to be 3.8%
It has been revised several times throughout this year.

Currently, it stands at 3.1% which is 0.1% off what is classified by economists as a global recession.

“Downside risks to the world economy appear more pronounced than they did just a few months ago.”

Could we be heading into another Global Recession?

[Renting_And_Proud]

How big a threat is this to the Irish economy

A lot of commentators put the improved Irish economic data largely down to

• US and UK economies outperforming the Eurozone
• weakness of euro

or put it another way - not thanks to how great the current government is. Positive news is always good of course, but not if you base policy on assuming this will continue ad infinitum

Seeing as we framed an election budget based on the usual Disco Stu school of economics could this turn the milk sour in Ireland?

[Daniel_Plainview]

If EURUSD hits parity then Ireland will be ok.
Watch the sectoral balances and ignore the other nonsense…
Trade Balance and Govt Deficit helping the Private Surplus for Ireland at the moment.

Almost impossible for Yellen to hike rates now — the German 5Yr is negative 13bps today!! the US 5Yr is positive 135bps; if she hikes she’ll blow that out to 175bps+ … and that would push EURUSD inside parity.

[BoyRacer]

Low interest rates threaten solvency of pension funds and insurers - -> oecd.org/economy/low-interes … surers.htm
24/06/2015

24/06/2015 - The current low interest rate environment poses a significant risk for the long-term financial viability of pension funds and insurance companies, as they seek to generate sufficient returns to meet promises, according to a new OECD report.

The report also cites a very real risk that the current trend for companies to return cash to shareholders via dividends and buybacks, in order to boost short-term returns, means that capital will not be reinvested in more productive activities. This will hurt innovative investment and productivity growth. There are also risks building up from greater leverage and riskier investment in higher-yield and complex products with poor liquidity.

Over the next five years, pension funds are expected to grow 26% from an estimated USD 28.4 trillion in 2014 to USD 35.8 trillion in 2019; insurance companies’ assets will grow 33% from USD 28.2 trillion in 2014 to USD 37.7 trillion in 2019; and mutual funds will expand by 38% from USD 33.4 trillion in 2014 to USD 46.1 trillion in 2019.

Pension funds and insurers could face issues as high-yielding bonds are replaced by low-yielding bonds in their portfolios. Lower interest rates will lead to lower returns for pension funds, which invest around 40% or more of their assets in fixed income securities, including lower yielding government bonds. If interest rates remain low into the future, funds and insurers may find their assets insufficient to meet their promises, unless they adjust their pension or payment promises.

there is more

Low interest rates have intended, unintended consequences - -> crainsdetroit.com/article/20 … nsequences

Private equity firms had $700 billion in assets in 2000; today, they have $3.5 trillion, Trennert said.** And investors should be leery of hedge funds, which have grown from about $30 billion in 2008 to about $130 billion now**. Despite their reputations, hedge funds have been getting beaten by traditional money managers.

“It’s the cult of activist hedge funds,” he said. “They used to be called raiders. Now they’re called activists, which is great PR.”

there is more

Low interest rates are the problem, not the solution - -> ft.com/cms/s/0/9ef4ab62-4d7a … 77189.html

But here’s the problem: we may be looking at it all the wrong way around. What if the malign effects of super low rates are so extreme that they are holding back the economy from recovery? What if low rates are more the problem than the solution?
Let’s look at some of these effects. There is the issue of capital misallocation. Low interest rates encourage people to borrow money to invest in things that aren’t necessarily good investments — global corporate debt has more than doubled from 26 per cent to 56 per cent of GDP according to McKinsey.

All this borrowing can be deflationary in that it creates excess supply (the US oil boom and the consequent collapse in the price of oil being a case in point). Given that super low interest rates are supposed to be causing inflation, that’s something of a problem. All this borrowing also pushes equity markets higher than seems a good idea: the biggest buyers of shares in the US market have been not real investors but companies buying back their own shares with cheap borrowed debt.

The result? Not only, as Troy’s Sebastian Lyon puts it, do “equity valuations appear high at a time when the outlook for earnings growth is poor,” but in building up debt that will eventually have to be paid back — and not spending it on useful research and development or capital expenditure — “companies have created an uncertain outlook for their own long term profitability”. That seems a shame.

there is more

Eventually the Fed and others will have to follow the market and raise or become irrelevant, in the meantime they are sowing chaos.

[yoganmahew]

Low interest rates deflationary? Sheesh, hoocudanode…

[Daniel_Plainview]

People slowly realising the cult of the central banker is just that: a cult.
Fiscal, not monetary, is the lever which best adjusts an economies demand.

[Carrot_and_stick]

IMF Downgrades Global Economic Outlook Again
wsj.com/articles/imf-downgra … 1444140016

According to IMF reports, in October 2014, global growth for 2015 was projected to be 3.8%
It has been revised several times throughout this year.

Currently, it stands at 3.1% which is 0.1% off what is classified by economists as a global recession.

“Downside risks to the world economy appear more pronounced than they did just a few months ago.”

Could we be heading into another Global Recession?

How can 3% growth be called a recession. Sounds a bit implausible to me

[Daniel_Plainview]

IMF Downgrades Global Economic Outlook Again
wsj.com/articles/imf-downgra … 1444140016

According to IMF reports, in October 2014, global growth for 2015 was projected to be 3.8%
It has been revised several times throughout this year.

Currently, it stands at 3.1% which is 0.1% off what is classified by economists as a global recession.

“Downside risks to the world economy appear more pronounced than they did just a few months ago.”

Could we be heading into another Global Recession?

How can 3% growth be called a recession. Sounds a bit implausible to me

two consecutive quarters of lower rate growth
so it’s essentially a second derivative measure

[mr_anderson]

Does anyone here think ZIRP will end without a bang ?

[yoganmahew]

Does anyone here think ZIRP will end without a bang ?

You mean that it can’t end without some shock, such as a war, to drive inflation?

I’m not sure, but it’s not looking good. Looking back, the failure of high oil prices to drive inflation (wage demands) should have been a warning sign. High housing prices (e.g. in London/SE England) aren’t working either. Even the wage demands of the successful economies (e.g. Germany) are pretty muted.