IMF cut 2016 global economic growth forecast, UK sees biggest reduction among advanced economies

In an updated World Economic Outlook (WEO) released in Washington on Tuesday night, the International Monetary Fund (IMF) cut its forecast for global economic growth by 0.1 percent to 3.1 percent for 2016. The global economy is projected to expand 3.4 percent in 2017. US growth forecast was revised by 0.2 percent to 2.5 percent in 2016. For the euro area, the Fund raised its forecast by 0.1 point this year, to 1.6 percent, and lowered it by 0.2 point in 2017, to 1.4 percent.

UK downgrade was the largest for any advanced economy. The organisation forecasts UK economy will expand 1.7 percent this year, 0.2 percentage point less than forecast in April. Next year, the nation’s growth will slow to 1.3 percent, down 0.9 point from the April estimate, IMF said.

The IMF said its forecasts were contingent on the “benign” assumptions that there will be a gradual reduction in uncertainty going forward.  IMF now believes the UK will manage to reach an agreement with Europe and the political fallout will be limited.

The outlook for other emerging and developing economies remains diverse and broadly unchanged relative to April. China’s growth forecast for 2016 is up 0.1 percentage point, to 6.6 percent, and is unchanged for 2017 at 6.2 percent. The fund has also maintained the economic growth forecast for Asean-5, which includes Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

US treasury yields dropped on IMF’s growth forecast. UST 10-yr yield hit a low of 1.537 percent before recovering to 1.549 percent in Asian session. Meanwhile, the two-year yield which mimics short-term rate hike bets, managed to etch out gains and move to 0.702 percent before trimming gains slightly to trade around 0.69 percent in Asian session.