Officials at the Bank of England on Wednesday flagged the growing risk that tech stock prices pumped up by the AI boom could burst.

“The risk of a sharp market correction has increased,” the U.K. central bank said.

The head of the International Monetary Fund raised a similar alarm hours after the Bank of England’s report.

Global stock prices have been surging, fired up by “optimism about the productivity-enhancing potential of AI,” IMF Managing Director Kristalina Georgieva said.

But financial conditions could “turn abruptly,” she warned in a speech ahead of the organization’s annual meeting next week in Washington.

Is there an AI bubble?

“Bubbles obviously are never very easy to identify, but we can see there are a few potential symptoms of a bubble in the current situation,” said Adam Slater, lead economist at Oxford Economics.

Those symptoms include rapid growth in tech stock prices, the fact that tech stocks now comprise about 40% of the S&P 500, market valuations that appear “stretched” beyond their worth and “a general sense of extreme optimism in terms of the underlying technology, despite the enormous uncertainties around what this technology might ultimately yield,” Slater said.

The most optimistic projections about the fruits of generative AI products foresee a transformation of the economy, leading to annual productivity gains that Slater says have not been seen since the reconstruction of Europe after World War II. At the lower end, economist Daron Acemoglu of the Massachusetts Institute of Technology has predicted a “nontrivial but modest” U.S. productivity gain of just 0.7% over a decade.

“You’ve got this incredibly wide range of possibilities,” Slater said. “Nobody really knows where it’s going to land.”

Doubts about the worth of top AI companies
Investors have closely watched a series of intertwined deals over recent months between top AI developers such as OpenAI, maker of ChatGPT, and the companies building the costly computer chips and data centers needed to power these AI products.

OpenAI doesn’t turn a profit but the privately held San Francisco firm is now the world’s most valuable startup, with a market valuation of $500 billion. It recently signed major deals with chipmaker Nvidia, the world’s most valuable publicly traded company, and its rival AMD, and a $300 billion deal with tech giant Oracle for the buildout of future data centers.

The Bank of England didn’t name any specific companies but said that on “a number of measures, equity market valuations appear stretched, particularly for technology companies focused on Artificial Intelligence.”

The report said stock market valuations are “comparable to the peak” of the 2000 dotcom bubble, which then deflated and led to a recession. With tech stocks accounting for an increasingly large share of benchmark stock indexes, stock markets are “particularly exposed should expectations around the impact of AI become less optimistic.”

he bank outlined so-called downside risks, including shortages of electricity, data or chips that could slow AI progress, or technological changes that could lessen the need for the type of AI infrastructure currently being built around the world.

The IMF’s Georgieva said current stock valuations “are heading toward levels we saw during the bullishness about the internet 25 years ago. If a sharp correction were to occur, tighter financial conditions could drag down world growth,” she said.

What the tech bosses say

Tech company bosses are downplaying the doomsayers.

The current AI boom is an industrial, rather than financial or banking, bubble and will be beneficial for society even if it bursts, Amazon founder Jeff Bezos said.

“The ones that are industrial are not nearly as bad. It could even be good because when the dust settles and you see who are the winners, society benefits from those inventions,” Bezos said at a recent tech conference in Italy.

He compared it to a previous biotech bubble in the 1990s that resulted in new life-saving drugs.

The excitement around AI is drawing in a huge wave of money to fund new business ideas, but it’s also clouding investors’ judgment, Bezos said.

“Every company gets funded, the good ideas and the bad ideas. And investors have a hard time in the middle of this excitement distinguishing between the good and bad ideas and so that’s also probably happening today,” he said.

On a tour last month of a Texas data center, OpenAI CEO Sam Altman predicted people will “make some dumb capital allocations” and there will be short-term ups and downs of overinvestment and underinvestment.

But he added that “over the arc that we have to plan over, we are confident that this technology will drive a new wave of unprecedented economic growth,” along with scientific breakthroughs, improvements to quality of life and “new ways to express creativity.”

Awaiting the promise of more useful AI agents

Nvidia CEO Jensen Huang acknowledged in a CNBC interview on Wednesday that OpenAI doesn’t yet have the money to buy its chips, but “they’re going to have to raise that money” through revenue, which “is growing exponentially,” along with equity or debt.

Huang said he also believes a transition has happened as leading AI developers are moving from chatbots that operated “basically at a loss” because the models “weren’t useful enough to pay for” to one in which the AI systems are capable of higher-level reasoning.

“It’s doing research before it answers a question,” he said. “It goes on the web and studies other PDFs and websites, it can now use tools, generate information for you, and it creates responses that are really useful.”

AI companies have spent more than a year pitching the transformative potential of “AI agents” that can go beyond a chatbot’s capability by being able to access a person’s computer and do coding and other work tasks on their behalf. But as the initial hype fades, Forrester analyst Sudha Maheshwari said businesses looking to buy these AI tools are taking a closer look at whether they’re getting enough return on their investments.

“Every bubble inevitably bursts, and in 2026, AI will lose its sheen, trading its tiara for a hard hat,” she wrote in a report Wednesday.

-AP

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The heightened uncertainty that has characterised the global economy for the past five years persists, and G20 countries as a bloc with mostly developing economies, must find solutions.

This was a key message of Treasury director-general Duncan Pieterse, who spoke at the 4^th G20 Finance Track Meeting of Finance and Central Bank Deputies meeting held at Zimbali outside Durban in KwaZulu-Natal.

“We are meeting at a moment of ongoing uncertainty in the global economy,” Pieterse said

“While there are signs of resilience in some areas, various challenges remain: uneven growth, high debt levels, inflation and tighter financial conditions.”

This has been a feature of the global economy since the outbreak of the Covid-19 pandemic five years ago. It was followed by the cost-of-living crisis sparked by the Russia-Ukraine conflict and sustained by the conflict in the Middle East.

Pieterse said that long-term changes such as digitalisation, climate finance and demographic shifts were also shaping global economies.

“The multilateral system is being tested,” Pieterse said, “and our collective ability to respond, will shape the pace of our recovery, but also the prospects for inclusive and sustainable development.”

“As the G20, we have the responsibility to demonstrate leadership, and our Presidency places a very strong emphasis on strengthening the role of the G20 in delivering concrete solutions,” he said.

The DG highlighted the need to improve the financial system, deal with debt and liquidity problems and support development.

Over the next two days, the deputies will focus on several key topics. Monday’s session started with a report from the Council of Europe Development Bank about how development banks were working together to improve results.

This was followed by a simulation led by the World Bank to demonstrate how the world could respond quickly to a pandemic.

On Tuesday, the International Monetary Fund (IMF) and World Bank will update the group on the Global Sovereign Debt Roundtable (GSDR).

Pieterse said this session was aimed at improving information sharing and making debt restructuring more effective.

He noted that a GSDR playbook on how to handle debt problems was released in April and that another guide was released by the G20 on how to manage debt under the Common Framework.

Later, former South African finance minister Trevor Manuel will give an update on the work of the Africa Expert Panel.

Pieterse said this session would show how Africa’s development goals could be included in the G20’s global economic plans.

Pieterse said the discussions that started virtually last week had helped build a strong base for this week’s work.

The goal is to reach agreement on a communique that will be presented to G20 finance ministers and central bank governors later this week.

INSIDE POLITICS

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The International Monetary Fund on Tuesday slashed its forecasts for growth in the United States, China and most countries, citing the impact of U.S. tariffs now at 100-year highs, and warning that further trade tensions would slow growth further.

The IMF released an update to its World Economic Outlook compiled in just 10 days after U.S. President Donald Trump announced universal tariffs on nearly all trading partners and higher rates – currently suspended – on many countries.

It cut its forecast for global growth by 0.5 percentage point to 2.8% for 2025, and by 0.3 percentage point to 3% from its January forecast that growth would reach 3.3% in both years.

It said inflation was expected to decline more slowly than expected in January, given the impact of tariffs, reaching 4.3% in 2025 and 3.6% in 2026, with “notable” upward revisions for the U.S. and other advanced economies.

The IMF called the report a “reference forecast” based on developments through April 4, citing the extreme complexity and fluidity of the current moment.

“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” IMF chief economist Pierre-Olivier Gourinchas told reporters.

The IMF said the swift escalation of trade tensions and “extremely high levels” of uncertainty about future policies would have a significant impact on global economic activity.

“It’s quite significant and it’s hitting all the regions of the world. We’re seeing lower growth in the U.S., lower growth in the euro area, lower growth in China, lower growth in other parts of the world,” Gourinchas told Reuters in an interview.

“If we get an escalation of trade tensions between the U.S. and other countries, that will fuel additional uncertainty, that will create additional financial market volatility, that will tighten financial conditions,” he said, adding the bundled effect would further lower global growth prospects.

Weaker growth prospects had already lowered demand for the dollar, but the adjustment in currency markets and portfolio rebalancing seen to date had been orderly, he said.

“We are not seeing a stampede or a run to the exits,” Gourinchas said. “We’re not concerned at this stage about the resilience of the international monetary system. It would take something much bigger than this.”

However, medium-term growth prospects remained mediocre, with the five-year forecast stuck at 3.2%, below the historical average of 3.7% from 2000-2019, with no relief in sight absent significant structural reforms.

The IMF slashed its forecast for growth in global trade by 1.5 percentage point to 1.7%, half the growth seen in 2024, reflecting the accelerating fragmentation of the global economy.

Trade would continue, but it would cost more and it would be less efficient, he said, citing confusion and uncertainty about where to invest, where to source products and where to buy components. “Restoring predictability, clarity to the trading system in whatever form is absolutely critical,” he said.

Reuters

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Gauteng finance and economic development MEC Lebogang Maile has unveiled a five-year budget approach that he believes will facilitate provincial delivery based on the medium-term development plan.

Tabling the provincial budget at the legislature on Tuesday, Maile warned against wasteful expenditure and highlighted how accruals remained a significant threat to Gauteng’s fiscal sustainability and affected spending power.

“With a shrinking equitable share and slow economic growth, Gauteng provincial government departments must internalise these fiscal constraints and align spending with the 2024-2029 Medium-Term Development Plan.

“Failure to act decisively – through expenditure oversight, keeping the overall wage bill under control and exploring alternative funding models – will risk deepening the liquidity crisis, threatening service delivery, and exposing the province to significant governance and fiscal risks,” he said.

The MEC said the five-year plan would be anchored on maintaining fiscal discipline and credibility, impactful service delivery and responding to high-level provincial risks such as safety, economic growth, climate change and debt management

He said Gauteng was the wealthiest province in the country and the region, and this wealth must translate into improved quality of life for its residents.

He added that research by the Gauteng City Region Observatory revealed that a quarter of households in the province still lived in abject poverty. Furthermore, research by various higher learning institutions indicated that a significant number of people experienced food insecurity.

“This illustrates the poverty dynamic in a wealthy region. It is for this reason that in our assessment of the service delivery and poverty alleviation strategies, we are focused not only on analysing the underlying flows, that is, who enters and leaves poverty, rather than just focusing on the stock, which is the number of people living in poverty at a specific time,” he said.

Maile said the global economic environment was characterised by uneven growth prospects for different regions, rising debt levels and geopolitical tensions, including protectionist policies and populism.

He said that according to the International Monetary Fund, advanced economies grew by an estimated 1.7% in 2024, unchanged from 2023. Projections were that growth will improve marginally to 1.9%.

South Africa continued to experience weak economic performance due to structural challenges and logistical constraints.  National Treasury projects that the economy will grow by 1.75% in 2025 and 2026 respectively.

Gauteng remains the biggest contributor to the South African economy with the province currently contributing 35% to the National Gross Domestic Product.

“The provincial economy continues to grow above national levels. Our economy grew by 1.3% in 2024. It is expected to rise to 1.8 percent in 2025 before reaching 2% in 2026.

“We are convinced that to deal decisively with the monopoly structure of the economy, we must promote the development of small businesses, particularly township enterprises and cooperatives.

“Over the past five financial years, the Gauteng provincial government has invested a total of R15.1 billion in township-based enterprises owned by Blacks, women, youth, people with disabilities and military veterans through our preferential procurement spend,” he said.

Maile said over the past five years, the provincial government’s own revenue amounted to R36.8 billion, which on average was R7.2 billion per year. He added that in the current financial year, up to the end of February, the province has raised R7.3 billion, which is slightly above the average.

Revenue collection was expected to increase from R8.3 billion in the 2025/26 financial year to R8.7 billion in 2026/27 and reach R9.1 billion in the 2027/28 financial year.

The MEC tabled the provincial budget of R527.2 billion over the medium term.

Maile said it was worrying that infrastructure projects were lagging, which had led to high unemployment.

“Our comprehensive research indicates that not all Gauteng infrastructure projects are economically feasible. Some are not fit-for-purpose while others are sustainable in the longer term in terms of operations and maintenance costs,” he said.

The MEC said the provincial government increase would increasingly focus on infrastructure projects that were not only sustainable, but also directly contributed to an increase in its revenue stream and to economic growth and development.

INSIDE EDUCATION

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The African Development Bank’s regional refinancing facility for hard-pressed African nations with maturing international bonds will be activated soon, the AfDB’s president said on Wednesday, after heads of state grant their approval in two weeks.

The creation of the facility, known as The African Financial Stability Mechanism, has been finalised by the bank and received approval from finance ministers, and it is now just awaiting final approval from heads of state at an African Union summit in mid-February, Akinwumi Adesina said.

“That is a facility that will allow Africa to refinance its debt on the global capital markets,” he told Reuters in an interview in Tanzania’s commercial capital.

“IMF doesn’t do refinancing. Multilateral development banks don’t do refinancing so this particular facility will help Africa to deal with the situation we are in.”

African countries face high refinancing risks, he said, with repayments of $20 billion coming up every year over the next three years.

The facility will lend money at “concessional” rates, Adesina said, adding that beneficiaries will be expected to carry out defined macroeconomic and fiscal reforms.

Reuters

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Mozambique’s international bonds tumbled earlier this week after a news report that the new government in Maputo is weighing a debt restructuring following months of post-election turmoil.

Below are some of the issues facing the resource-rich southern African country of 35 million people.

WHAT IS MOZAMBIQUE’S DEBT SITUATION?

Concerns about government finances have been mounting in recent years due to an Islamist insurgency in northern Mozambique that has delayed plans to develop huge gas fields.

Although Mozambique’s public debt-to-GDP, fell to 93.7% in 2023 from 100.3% the previous year, it is classified by the International Monetary Fund (IMF) as being at high risk of overall debt distress.

Its external debt-to-GDP ratio fell to 66.2% from 72.1% but frequent delays in the development of liquefied natural gas fields mean that it has to wait longer before its external debt service can benefit from those exports.

With total debt close to annual economic output, the government will have to embrace fiscal discipline.

HOW HAS POLITICAL INSTABILITY HURT STATE FINANCES?

Deadly protests flared up in October after the opposition accused the government of cheating in a presidential election won by Daniel Chapo, who extended the grip of the ruling Frelimo party that has been in power for half a century.

Chapo has said he is committed to improving Mozambicans’ welfare by boosting productivity and building a more inclusive economy.

The government lost 42 billion metical ($664.03 million) in revenues as a result of the economic disruption caused by the protests, newly-appointed Finance Minister Carla Louveira told Bloomberg. That left the government with little choice but to overhaul its domestic and dollar debts, the minister added.

Mozambique’s $900 million bond matures in September 2031 but it also has to clear external debt arrears, which stood at $1.2 billion at the end of 2023, the IMF said.

Relative calm has returned after months of violent clashes in which more than 300 people were killed, according to civil society groups.

Frelimo’s Chapo was sworn into office on Jan. 15 and made cabinet appointments, promising that social and political stability was at the top of his agenda.

But opposition leader and runner-up in the October election, Venancio Mondlane, who returned to Maputo from self-exile on Jan. 9, has called on supporters to continue demonstrations.

Chapo’s government has the upper hand in parliament, however, after Frelimo increased its majority to 195 out of 250 seats in the October polls.

WHAT DOES THE IMF SAY?

Mozambique is in the final phase of a three-year, $456 million IMF programme agreed in May 2022 that aims to support the country’s economic recovery and debt reduction.

The Fund, whose calculations and projections usually form the basis of any debt overhaul, said it was aware of the report of a potential restructuring but that it remained focused on its current programme with Mozambique.

Maputo and the IMF had started negotiations before the October election on a new funding programme but they were then put on hold pending the installation of a new government, the Fund’s resident representative told Reuters last month. It remains unclear when those talks might resume.

Chapo told Reuters in an interview after his inauguration that maintaining macro-economic stability was crucial, in order to make the country’s growth more inclusive by putting more money into the pockets of poorer Mozambicans.

Mozambique and the IMF have had strained ties in the past. The Fund suspended Mozambique’s access to financing in 2016 after the discovery of hidden debts linked to a “tuna bonds” scandal. The country later fulfilled the conditions set out by the Fund to regain access to financing programmes.

WHAT OTHER FACTORS AFFECT THE ECONOMY?

Like other countries in the region, Mozambique’s economy has been hit hard by climate change in recent years. Deadly cyclone Chido last month is expected to have hit economic output.

Growth slowed to 3.7% in the third quarter from 4.5% in the second quarter, said the IMF, which expects a potentially worse fourth quarter performance due to the protests and the cyclone.

Progress on developing vast oil and gas deposits – some of Africa’s biggest – has been slow.

Investments by Total Energies and ExxonMobil have been delayed by an Islamist insurgency.

Reuters

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Surrounded by crypto executives buoyed by Donald Trump’s presidency, South Africa’s central bank chief on Tuesday criticized industry lobbying of U.S. policymakers, telling a Davos panel event that bitcoin made no more sense as a reserve asset than beef or apples.

Other panellists welcomed Trump’s presidency as promising big opportunities for the sector, with Coinbase CEO Brian Armstrong saying Trump’s new term will draw a lot of investment into crypto.

Bitcoin hit all-time highs above $100,000 following Trump’s election, he said.

“The Trump effect cannot be denied here. To have the leader of the largest GDP country in the world come out undeniably and say that he wants to be the first crypto president… This is unprecedented,” Armstrong said during a panel at the World Economic Forum annual meeting in Davos.

Armstrong also welcomed Trump’s plan to create a U.S. government bitcoin stockpile, but the idea was criticised by South Africa’s central bank governor, Lesetja Kganyago, who was also on the panel, on the grounds it suggested undue influence of lobbyists.

“I would have a significant problem with a lobby that says governments should hold this asset or hold that asset,” Kganyago said.

“There is a history to gold. There was once a gold standard… If we now say ok, bitcoins. What about platinum? What about coal? Why don’t we hold strategic beef reserves, or mutton reserves, or apple reserves? Why Bitcoin?”

Kganyago also criticised what he saw as the crypto industry’s attempts to influence financial regulation, saying it risked “regulatory capture”.

The cryptocurrency industry, including heavyweights like Coinbase and Ripple, spent more than $119 million backing pro-crypto U.S. congressional candidates, hoping to boost those who would pass crypto-friendly bills.

“If regulation is going to be established through the power of money, then we have a problem,” Kganyago said.

Responding to Kganyago’s comments, Armstrong said the impact of pro-crypto groups in the U.S. showed “democracy working”.

Jennifer Johnson, CEO of Franklin Templeton, said some institutional investors had “blinders on” to the rapid growth of cryptocurrencies. “It’s literally like two parallel universes,” Johnson said.

Regulatory clarity is needed in the market to give big money managers confidence in the sector, she added.

BITCOIN RESERVES

Crypto investors are hoping Trump will introduce a national reserve of bitcoin after announcing plans to do so in July 2024.

While bitcoin’s price cooled on Monday after Trump made no mention of crypto assets in his inauguration speech, Coinbase’s Armstrong said plans for a bitcoin reserve were “alive and well”.

Crypto executives held a ball in Washington last week to celebrate Trump’s inauguration.

The upbeat mood marked a rapid turnaround from 2022, when a series of bankruptcies at top crypto firms exposed fraud and misconduct across the industry and left millions of investors with heavy losses.

Reuters

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Mozambique’s 2024 economic growth is likely to be revised down from a previous forecast of 4.3% due to post-election civil unrest and the impact of Cyclone Chido, a senior International Monetary Fund (IMF) official said.

In October, Daniel Chapo, the candidate of Mozambique’s ruling party Frelimo, was declared winner of the presidential election that opposition parties say was marred by voting irregularities.

The disputed election results sparked protests from opposition supporters and there has been more violence since. The unrest has affected business operations, including for mining companies, and has at times led to the closure of key trade corridors.

Mozambique’s Constitutional Council is expected to rule on the validity of the election count on Dec. 23, an outcome civil society organisations and analysts fear may trigger more violence and economic disruption if Frelimo’s victory is upheld.

“Growth went from 4.5% in the second quarter to 3.7% in the third quarter, before the protests started,” Olamide Harrison, the IMF’s Mozambique resident representative, told Reuters.

“In the context of protests, and natural disasters, we expect a further slowdown in the fourth quarter followed by a modest rebound in 2025,” he said.

Harrison said the IMF deeply regretted the loss of lives during the protests, adding that it was a “difficult situation” the lender was closely monitoring.

Cyclone Chido, which made landfall in northern Mozambique over the weekend killing at least 34 people, has also dampened growth prospects, he said.

Harrison said negotiations for a three-year credit facility programme between the IMF and Mozambican authorities will resume once a political transition is complete.

“We wait until the new government is in place and then we resume negotiations,” he said of a process typically followed when there is a political transition during an ongoing IMF lending arrangement.

Reuters

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The world economy, buffeted by conflict and growing geopolitical rivalries, is in danger of getting stuck in a slow-growth, high-debt rut, the head of the International Monetary Fund warned Thursday. She also urged Chinese leaders to take more decisive action to jump-start their country’s sluggish economy or risk seeing economic growth plummet.

“These are anxious times,’’ the fund’s managing director, Kristalina Georgieva, told reporters during the fall meetings of the IMF and its sister agency, the World Bank.

The IMF forecasts that the global economy will expand this year at what Georgieva called an “anemic’’ 3.2%.

Global trade is lackluster at a time of conflict and growing geopolitical tension — including frosty relations the world’s two largest economies, the United States and China. ”Trade is no more a powerful engine of growth,’’ she said. “We live in a more fragmented global economy.’

At the same time, many countries are struggling with debts they took on to combat the COVID-19 pandemic. The IMF expects government debts worldwide to top $100 trillion this year. That would equal to 93% of global economic output — a share that is expected to approach 100% by 2030.

“The global economy is in danger of getting stuck on a low growth, high debt path,’’ Georgieva said. ”That means lower income and fewer jobs.’’

Still, the economic backdrop isn’t entirely bleak.

The IMF says the world has made considerable progress to rein in inflation that surged in 2021 and 2022 as economies roared back with unexpected strength from pandemic lockdowns. She credited higher interest rates engineered by the Federal Reserve and other central banks and the easing of backlogs at factories, ports and freight yards that had caused shortages, delays and higher prices.

In wealthy countries, the fund expects inflation to drop next year to the 2% sought by central banks. And price pressures have eased without sending the world into a recession. “For most of the world, a soft landing is in sight,’’ Georgieva said.

But many people are still struggling with high prices and economic uncertainty. World leaders are telling her that their economies are relatively healthy — but ordinary “people are not feeling good about their economic prospects.’’

The IMF, a 190-nation lending organization, works to promote economic growth and financial stability and reduce global poverty.

In its latest World Economic Outlook report, issued Tuesday, the fund forecast that the once high-flying Chinese economy would grow just 4.8% this year and 4.5% in 2025, down from 5.2% in 2023.

Georgieva urged the Chinese government to shift away from dependence on exports and toward more reliance on spending by consumers, which she called a ”more reliable’’ engine of growth. Taking “decisive action’’ to reverse a collapse in the Chinese property market, she said, would boost consumers’ confidence and willingness to spend.

“If China doesn’t move, potential growth can slow down to way below 4%,’’ she said.

AP

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The International Monetary Fund (IMF) has sliced Nigeria’s Gross Domestic Product (GDP) projection for this year to two per cent, down from the 2.3 per cent it had predicted for the country previously.

The fund stated this in its World Economic Outlook (WEO) update titled, “A Weakening Global Expansion,” released yesterday.

The multilateral institution attributed its decision to lower the country’s growth projection by 0.3 percentage point to softening crude oil prices.

The benchmark Brent crude price fell yesterday to $62.35 a barrel, while US crude futures were down 23 cents at $53.57 a barrel.

However, the IMF in the latest report anticipated that in sub-Saharan Africa, growth would pick up from 2.9 per cent in 2018, to 3.5 per cent in 2019, and 3.6 per cent in 2020.

It said, “For both years the projection is 0.3 percentage point lower than last October’s projection, as softening oil prices have caused downward revisions for Angola and Nigeria.

“The headline numbers for the region mask significant variation in performance, with over one-third of sub-Saharan economies expected to grow above five per cent in 2019–2020,” it explained.

Continuing, the report stated, “Global growth in 2018 is estimated to be 3.7 percent, as it was last fall, but signs of a slowdown in the second half of 2018 have led to downward revisions for several economies.

“Weakness in the second half of 2018 will carry over to coming quarters, with global growth projected to decline to 3.5 per cent in 2019 before picking up slightly to 3.6 per cent in 2020 (0.2 percentage point and 0.1 percentage point lower, respectively, than in the previous WEO).

“This growth pattern reflects a persistent decline in the growth rate of advanced economies from above-trend levels—occurring more rapidly than previously anticipated—together with a temporary decline in the growth rate for emerging market and developing economies in 2019, reflecting contractions in Argentina and Turkey, as well as the impact of trade actions on China and other Asian economies.”

It also noted that concerns about inflationary effects from earlier oil price increases and, in some cases, closing output gaps or pass through from currency depreciation had led central banks in many emerging market economies – Chile, Indonesia, Mexico, Philippines, Russia, South Africa, Thailand- to raise policy rates since the fall.

It also stated that foreign-currency sovereign credit spreads have edged up for most countries and risen substantially for some frontier markets, with investors generally lowering exposure to riskier assets, while emerging market economies experienced net capital outflows in the third quarter of 2018.

According to the IMF, “As of early January, the US dollar remains broadly unchanged in real effective terms relative to September, the euro has weakened by about two per cent amid slower growth and concerns about Italy, and the pound has depreciated about two per cent as Brexit-related uncertainty increased. In contrast, the Japanese yen has appreciated by about three per cent, on higher risk aversion.

“Several emerging market currencies—including the Turkish lira, the Argentine peso, the Brazilian real, the South African rand, the Indian rupee, and the Indonesian rupiah – have staged recoveries from their 2018 valuation lows last August to September.

“Emerging market and developing economies have been tested by difficult external conditions over the past few months amid trade tensions, rising US interest rates, dollar appreciation, capital outflows, and volatile oil prices. In some economies, addressing high private debt burdens and balance-sheet currency and maturity mismatches will require strengthening macro-prudential frameworks.

“Exchange rate flexibility can complement these policies by helping to buffer external shocks. Where inflation expectations are well anchored, monetary policy can provide support to domestic activity as needed.

“Fiscal policy should ensure debt ratios remain sustainable under the more challenging external financial conditions. Improving the targeting of subsidies and rationalising recurrent expenditures can help preserve capital outlays needed to boost potential growth and social spending to enhance inclusion.

“For low-income developing countries, concerted efforts in these areas would also help diversify production structures (a pressing imperative for commodity-dependent economies), and their progress toward the UN Sustainable Development Goals.”

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