Summary for the 22nd of January 2019


At Davos, the International Monetary Fund estimates that the world ‘GDP will be 3.5% this year and 3.6% next year, down from what it has estimated earlier by 0.2% and 0.1% respectively. The downward adjustment is bigger for the emerging market than for the developed market. For the developed market, the downward adjustment is mostly from the EU countries.

Christine Lagarde, the managing director of the IMF in her speech yesterday, says that the downward adjustment is due to two years of strong economic growth and expansion. She says the economic is still growing, though slower, and that the risks are rising. Some of the risks are highly connected, like how the rise in tariffs and trade conflict lead to volatility in the market. This leads to tighter lending terms, which are one of the risk factors for countries with high debt. Even though the risks are higher, on the question about the recession is around the corner, she says the answear is no. Still, due to the risk of decline in economic growth and the geopolitical worries, the IMF has a clear message: “Address remaining vulnerabilities and be ready if a serious slowdown were to materialize.”

Lagarde goes on and say that, “for most countries, this means to harnessing the existing growth momentum to create more policy room to act”. This can be interpreted that central banks should start rising interest rates, so that they can have counter measures when a sharp downturn arises. Also, she says the goal for harnessing existing growth is to make economies more “resilient and more inclusive, and to increase collaboration”:

Resilient: Lagarde refers to reducing high government debt, this will open more space to fight future downturns. Monetary policy should be data-dependent, and exchange rates should be allowed to act as shock absorbers. This is also the time for reforms to lift growth, especially in the labor market and infrastructure investment.

Inclusive: Is to deliver on the digital evolution, and to deliver for the people. Helping workers who lose their jobs due to automation and creating new opportunities for women and young people.

Collaboration: International cooperation comes down to redouble efforts to resolve shared problems -from fixing the global trade system, to fighting corruption and tax evasion, to addressing the existential threat of climate change.

In the UK, the British prime minister, Theresa May has presented a plan B for the Brexit, this is mostly the same as plan A, but the backstop solution for Northern Ireland is changed, and will now be a temporary solution. Michel Barnier, the European Chief Negotiator for the UK’s exiting the EU is currently rejecting this new plan. The British parliament will be discussing alternatives this week, these include a hard Brexit (no deal) as well as a new referendum.

Indices on 21st and 22nd  of January.: US stock market was closed due to marking of the birthday of Martin Luther King Jr.

Nikkei and Chinese indices closed in red, due to the IMF downward estimation of the world economy.

Dow: Closed. (21st)
S&P 500: Closed. (21st)
Nasdaq: Closed. (21st)
Nikkei: -0.7% (22nd)
Chinese indices: -1.4% (22nd)

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