Of politics, IMF and global GDP forecast

Politics. A word which elicits lots of cynical smile these days regardless of which side of the fence you are on. It may even cause heated arguments. Well, politics is beyond just Malaysia. It is now weighing on the world GDP growth and the outlook is not that awesome. Reported in many medias recently was about International Monetary Fund (IMF) which has lowered its global GDP forecast and has mentioned politics as one of the major issues that will impact the financial markets and the economy. IMF has started to urge economies to be more pro-active and be growth oriented.

IMF has lowered its global gross domestic product by 0.1 percent to 3.1 percent year on year for 2016 and 3.4 percent for 2017. Yes, we can see from this forecast that IMF is still expecting 2017 to be a better year than 2016. One key reason was because of BREXIT as well as a weaker US Q1 2016. The IMF cited Britain’s decision to leave the European Union (EU) or Brexit and weaker US first-quarter economic growth as reasons for lowering the global growth forecast. IMF’s chief economist Maurice Obstfeld says, “The real effects of Brexit will play out gradually over time, adding elements of economic and political uncertainty.”

Nodody knows for sure how Brexit will impact the EU and Britain especially in the areas of trade and finance as it will depend on negotiations taking Do note that negotiations between Britain and the EU has yet to commence. The two major issues would include immigration and security. Morgan Stanley Research senior economist Chetan Ahya said that due to a series of upcoming political events across developed and emerging markets, this will definitely affect growth. He added, “As it is, the starting point of global growth has been weak and the global economy remains susceptible to a number of shocks. We therefore still view risks as being skewed towards the downside.” In very briefly, things do not look good.

In terms of Malaysia, Franklin Templeton’s proprietary Local Markets Resilience Index matrix ranking countries on their current and projected conditions has shown that Malaysia has strong domestic demand albeit with some weakening ahead. Malaysia earns top scores for adopting a flexible exchange rate and prudent macro policies. Malaysia score well too for structural reforms that include strong institutions and transparency but further reforms may be more difficult. besides that Malaysia’s current policy remains forward-looking with the ongoing fiscal consolidation and prudent monetary policy while external vulnerability is limited, thanks to the high degree of export diversification, and is projected to improve further. In very briefly, Malaysia is probably not going to be that country that will start a financial crisis.

I do hope everyone keep reading all these as some form of guide as we continue to read too many Facebook economists these days. By the way, for those who keep saying Malaysia is about to go into a recession, please stop spending unnecessary and staying away from an asset class such as property is recommended. It will take a very long time to sell and run when needed. Happy reading.

written on 22 July 2016

Next suggested article:  Getting ready for the next global recession?

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