The International Monetary Fund (IMF) has downgraded its global growth forecast in its latest world economic outlook (WEO) update, pointing to weakness in the emerging market economies.
“We are very much on the same page as the IMF on their latest global forecasts,” said Philip Shaw, chief economist at Investec, “While prospects for most developed economies have more or less held up quite well over have the past few months, the situation in various emerging market economies has deteriorated markedly.”
A number of issues such as the Greek debt negotiations and a spike in volatility earlier this year have led to uncertainty among investors. Adding to that is the Chinese slowdown which has many investors concerned about its impact on the global economy. However, some analysts believe the worst is already behind us.
“While the pace of Chinese activity is slowing, we are of the view that the most pessimistic assessments of China are overdone and that too much weight is generally placed on manufacturing-linked developments,” Mr Shaw added.
But emerging markets continue to find themselves under pressure due to market speculation that the US Federal Reserve will start raising interest rates soon. “Many emerging market economies may face financing pressures if and when the Fed begins to raise interest rates, while individual countries in this space have their own idiosyncratic problems. Hence, it may be a little premature to suggest that the situation generally has stabilised,” Mr Shaw said.
Retail analysts have warned that UK retail funds with exposure to these markets may be at risk. “The Bank of England forecasts that, for every 1 per cent slowdown in emerging market growth, it will knock about 0.25 per cent off UK and global growth,” said Alex Dryden, global market strategist at JP Morgan Asset Management. “When it comes to the impact that the emerging market slowdown will have on the global economy it is likely to slow the ship but it will not sink it.”
