Sunday , June 20 2021

The IMF warns, but the markets remain negative. – ACDEFI

While the IMF may lower its growth forecasts and warn the international community that the global economy is increasingly threatened by a new crisis, stock markets are not interested. On the contrary, they prefer to ignore dangers, believe in miracles, and continue to grow despite threats.

Undoubtedly, IMF forecasts are rarely accurate. Just a few months ago, they also reported strong global growth, a very dynamic emerging world, a thriving eurozone, and fabulous France.

Today, the same IMF is far from this blessed optimism. Exactly. Therefore, its projections for 2019 are more boring, even if they remain very optimistic given the danger of circumvention. For example, it predicts global growth of 3.5% compared to 3.7% last October. By way of illustration, let's remind you that in April 2018, he announced a global growth of 3.9% in 2018 and that it would be 3.5% (or 3.3% according to our estimates). This is to say how the current IMF forecasts unfortunately is too high …

For our part, we continue to forecast global GDP growth of around 2.8% this year, which means that if we are right, the markets are likely to be very disappointed and disappointed by the end of the year. end of 2019

Indeed, the IMF forecast of 3.5% still contrasts with IMF warnings about threats to the international economy. Starting with the economic and political crisis that rages in Italy, France, but also in Germany, and which will not spoil the situation throughout the eurozone.

The change in GDP expected by the IMF in 2019 was 1.6%, 0.3 percentage points lower than last October. The problem is that in the fourth quarter of 2018 the annual GDP change in the euro area is expected to fall to 1% and the latest leading indicators of the economy show that it may fall to 0% by next summer. In other words, the IMF forecast for euro area growth will be further reduced in the coming months.

The same penalty applies to Russia, Mexico or Saudi Arabia, with GDP projections revised downwards but still moderate. Let us note, however, two good news. First, the IMF confirmed its forecasts for the United States and China, with levels of 2.5% and 6.2%, respectively. Secondly, it revised upward, which refers to growth in India (up to 7.5%, at 7.4% previously). It remains to be seen whether the figures provided by these two locomotives for global growth are true …

Nevertheless, despite these two positive points, the growth forecast for the entire developing world was reduced by 0.2 percentage points compared to October, to 4.5%, which remains, according to our estimates, still above the reality.

In addition to this significant risk, the IMF also rightly points to four other major hazards, namely "escalating trade pressures", "deteriorating financial conditions", Brexit, and risks of a slowdown in some euro area countries. Compared to its October estimates, the IMF sharply revised its forecasts for Germany (1.3% vs. 1.9%) and Italy (0.6% vs. 1.0%).

As France often benefits from preferential treatment, after announcing a 1.6% growth in October last year, the IMF now only declines by 0.1 percentage points to 1.5%. This hardly reduces by 1.7% the French government, but largely with the last leading indicators of the French economy, which instead show a growth of 20% by about 1%. To believe that the IMF chose to black out the table for Germany and decorate for France. Look for the error.

However, it is finally time for a general delay.

Still, despite all the bearish revisions and largely justified warnings, the stock markets continued to grow. Between the low point on 27 December 2018 and 24 January CAC 40 increased by 5.9%. Of course, there is still 13.9% below its peak in the spring of 2018.

As for Dow Jones, its development between December 24, 2018 and January 23 was 12.8 percent. Now it is only 8.8% of its peak in 2018.

This new outbreak is obviously due to the corrective effect of a sharp decline in the end of 2018, but also, or even above all, by the continuing denial of consensual reality, which therefore neglects the slowdown in growth and many risks impact on the future of the economic and financial spheres.

In other words, collective blindness continues in the financial markets. Awakening, unfortunately, will be more painful when confronted with the reality of the slowdown in international economic activity. As a result, and in line with our forecasts, volatility will remain extremely strong in the stock markets. For the Cac 40 this will result in many laps between 4,200 and 4,800 points. For Dow Jones this wide range can range from 21,000 to 24,500. Since in both cases the high limit of these intervals has already been reached, we must prepare for an impending collapse.

Mark Twat

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