The International Monetary Fund (IMF) met in New York on Tuesday, 18 April 2017, to deliver its World Economic Outlook address. The IMF was bullish on its projections for worldwide growth, particularly for the United States which has enjoyed a honeymoon period since Trump’s election to the Oval Office. Additionally, there are improved economic prospects for major EM economies, as trade figures are reflective of strong growth. After 6 years of economic slowdowns, various countries like Turkey are now enjoying better growth (+19% year on year). One of the most heavily traded ETFs for emerging market economies – the iShares MSCI emerging markets fund is currently trading +11% for 2017. This is an extremely bullish sign for financial markets, particularly the emerging markets which tend to falter when developed economies adopt rate hikes and fiscal stimulus. The IMF forecast US economic growth at 2.3% in 2017, well beneath Trump’s estimate of 3% – 4%.
IMF Goes Long on Global Growth Rates for the YearIn 2016, the International Monetary Fund (IMF) projected global growth of 3.1%. Back in 2016 the IMF expected global growth to increase at 3.5% in 2017. However, the IMF remains staunchly against protectionist measures, particularly those that the US is considering against countries like Mexico and China. The US Secretary of Commerce, Wilbur Ross does not agree with IMF policy vis-à-vis protectionism, given that the US is in debt to China, India and other countries to the tune of $500 billion, making the US a net contributor to the protectionist policies of countries like China. For her part, Christine Lagarde of the IMF believes that protectionism could jeopardize global economic growth. Regardless, the economic indicators show that Asian exports are increasing and that overall economic trade is resurgent. The IMF’s prediction is that global economic growth will increase to 3.8% in 2017, increasing to 3.9% next year. Spearheading gains will be emerging market economies which are expected to improve by 4.5% in 2017 and as much as 4.8% next year.
What is Driving Markets to Stronger Global Growth?At the start of 2016 it was a slowdown in China that crippled emerging market economies. Recall that Chinese GDP fell beneath the key 7% level, and this decrease in demand affected the export potential of countries like Brazil, Russia, India, South Africa, Turkey etc. Now, China is back in the pound seats. In Q1 2017 the Chinese economy powered ahead at 6.9% GDP growth – the best figure in 2 years. Fueling the Chinese economic powerhouse is an increase in public investment and private-sector investment. In 2016, the IMF noted that Chinese GDP grew by 6.7%, but that figure is likely to be downgraded to 6.6% for the current year. One of the major concerns for Chinese economic growth is credit. Domestic credit growth has fueled a bubble in GDP growth that may or may not become a problem in the future.
US Credit Shortfall in FebruaryWhile the US economy is on track for improved gains this year, they are some concerns taking place on Main Street. Unmet credit demand in the United States increased in February 2017, according to the Center for Microeconomic Data, courtesy of the Federal Reserve Bank of New York. According to the statistics, the respondents were increasingly discouraged when they applied for credit. A figure of $2000 is considered the amount required to meet unexpected expenditures in the month ahead. The study found that 32.5% of respondents would require that amount, with 67.2% of people said that there was an average probability of coming up with that amount, which is approximately 1.3% higher than the October 2016 reading. What the data tells us is that applying for credit and obtaining that credit is increasingly difficult. There are signs of discouragement in the markets and that’s why there was an uptick in the number of people feeling that they would need $2,000 within the next month. What is particularly unnerving is the number of US consumers who are reluctant to make credit applications at traditional banks. In October 2016, the number of people who needed credit but didn’t apply for it was 5.7%, that figure is up at 7.1% for February 2017. This gives credence to other non-bank lenders which are available at platforms such as LendingTree. Peer to peer lending has gained in popularity since the late 1990s, and various providers have entered the markets to replace the traditional forms of lending from banks to banks and lenders to lenders. Comparative ‘loan shopping’ platforms have come into being, and these facilitate the provision of information on best loans, terms, and repayment timeframes. As US consumers face the prospect of increasing interest rates, it becomes all the more important to acquire the most customer-friendly loans on the market. Consumers may be eschewing banks in the US, but they are increasingly migrating to peer to peer networks to supplement the shortfalls in their income.
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