More Global Growth Downgrades Ahead

The International Monetary Fund has flagged that it will be publishing revised global growth forecasts on 19 July to take account of the impact of the UK referendum decision to quit the European Union. Another growth downgrade would come as the latest in a lengthy series of negative revisions to the growth outlook. The chart shows the IMF half yearly four year forecasts since 2013. The expected 2018 growth rate has been pared back by 0.85 percentage points over this period. The momentum of growth plays a critical role in the evolution of a raw material price cycle. The strongest growth in metal demand, and a resulting inventory rundown, will normally accompany a period of global growth acceleration. While the IMF is assuming an improvement in the growth rate, the extent of the improvement has come to depend increasingly on near term weakness. The lower growth base makes for a more arduous cyclical adjustment because markets have to take out the resulting inventory accumulation before the subsequent growth improvement can have an impact on prices.