The mood at last week’s Spring meetings of the IMF and World Bank was quite upbeat, as anticipated (see my preview here) though there were considerable concerns that near-term strength, exacerbated by U.S. fiscal stimulus and still supportive global monetary stimulus might be masking medium-term vulnerabilities. Many major economies are growing above potential, and are likely to experience some slowdown in growth, the question is how far, and whether the issues remain chronic or turn acute.
U.S. policy – fiscal, monetary, trade and sanctions dominated many. mostly unofficial discussions – and constituted the most common potential future negative catalysts, though most believed that trade wars were unlikely. My baseline includes a drag on private investment from trade and investment uncertainty, offsetting some of the other positive trends and exacerbating some of the impact of FX and commodity trends. Many global consumers may begin to face some challenges from the rising energy costs, admittedly offset by the recycling of strong import demand from oil exporting regions at a national and subnational level. Moreover, the fading sugar rush of the U.S. fiscal stimulus is likely to wear off while Chinese and several other countries continue their slowdown from the recent trend of above potential growth.
Across many issue areas (notably trade, Russia, Iran), it remains hard to discern what the Trump administration or rather the president might see as a success, a state of play that leaves things more uncertain for business, risks accidents and may amplify related market volatility.
Overall views from investors were mixed on the pathway for the dollar, cautiously optimistic about EM bonds, local and hard currency, and more constructive on non-US equity. Investors continue to be worried about the valuation of US assets particularly equities and higher yielding corporate bonds. Turkey stood out as a weak link – perennially exposed to negative shocks,
Looking ahead, the next few weeks are peppered with a variety of policy catalysts including the Iran deal deadline (May 12), public hearings on several proposed US tariffs (mid May), self-imposed if moving NAFTA deadlines, just to name a few.
The rest of the post highlights what I learned about the following:
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Like many economic, development and financial types, I’m planning to be in Washington D.C. this week for the Spring meetings of the International Monetary Fund and World Bank, which provide a good opportunity to take the pulse on current views on the global economy. It also provides a good chance to connect the threads of U.S. foreign and domestic economic policy, or at least try to. And I haven’t even gotten into the opportunity to better understand potential policy shifts in places like Mexico, Brazil, South Africa, Nigeria or concerns about concerning debt burdens in Ukraine, Egypt, Mozambique etc etc.
I’m expecting to find the mood cautious in the wake of divergent macro performance expectations, uncertainty around tariff, trade and investment policy, their links with sanctions and geopolitical risk that is adding to valuations and volatility of commodity markets. This will likely amplify concerns that have been present for some time about pricey equity valuations particularly in the U.S, prompting greater concerns about what to buy. I expect a lot of discussion of the recent market volatility, new entrants including cryptocurrencies, and focus on countries more exposed to the financing costs.
A few of the long list of questions follow, and I’m sure I’ll be surprised along the way. Let me know what I missed and check back here next week for my takeaways.
My preoccupations can be broadly grouped into global growth and trade risks, investment climate interest rate and credit in the face of tightening, commodity reflation impact on balance sheets, and the upcoming sanctions timeline.
Rachel's musings on macroeconomic issues, policy and more.