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IMF Warns Rising Risks of Global Economy

The International Monetary Fund released its latest World Economic Outlook on Tuesday (10/14). There's no doubt that the IMF is slashing its outlook for the global recovery from the pandemic recession, reflecting the persistence of supply chain disruptions in industrialized countries and deadly disparities in vaccination rates between rich and developing nations. The IMF foresees global growth this year of 5.9%, compared with its projection in July of 6%. "The global recovery continues but the momentum is hobbled by the pandemic," IMF Chief Economist Gita Gopinath told reporters at a briefing (10/12). The monetary fund expects the total output from advanced economies to recoup the losses they suffered during the pandemic by 2022 and to exceed their pre-pandemic growth path by 2024. Global supply shortages in the face of resurgent demand are triggering commodity price inflation that is being passed on to consumers. Moreover, emerging and developing economies are facing tougher financing conditions as debt levels climb, inflation soars, and their currencies weaken against the US dollar – compelling them to raise interest rates in a bid to keep inflation expectations in check. Prices from food to medicine to vehicles have risen worldwide, threatening the global recovery after the pandemic wiped out businesses and jobs. The foremost priority is, therefore, vaccination. While nearly 60% of the population in advanced economies are fully vaccinated, only about 4% of the population in the emerging countries are. It should be a top priority to meet the goal of vaccinating at least 40% of the population in every country by the end of this year and 70% of the population in every country by the middle of next year.

To achieve these levels, developed countries such as the United States would have to fulfill the commitments they have made to supply vaccines to emerging economies. "Recent developments have made it abundantly clear that we are all in this together and the pandemic is not over anywhere until it is over everywhere," Gopinath said. The recovery gap between several countries is expected to widen, "resulting in a larger setback to improvements in their living standards". Among leading economies, the United States' growth forecast has been cut by 0.1 percentage to 6% this year, while China's forecast has also been reduced by 0.1 percentage to 8%. Several other big economies saw their forecasts lowered, including Germany, expected to expand 3.1% this year, a 0.5 percentage point lower than its July projection. Japan's forecast was cut by 0.4 percentage points to 2.4%. Acknowledging this projection by IMF, markets in the US started to show signs of despairs. On Wednesday (10/13), The Dow Jones Industrial Average fell 117 points, weighed down by a 1.3% decline in Boeing stock. The S&P 500 index fell 0.24%. Later, the tech-heavy Nasdaq Composite dropped 0.14%. Despite that, analysts anticipate significant corporate profits growth in the US in the third quarter of 2021. However, a number of corporations have issued cautionary statements, and investors are concerned about how supply chain issues and rising pricing would harm businesses already battling to recover from the COVID-19 pandemic.

"In general, institutional portfolio managers are of the viewpoint that we should sit tight and see what earnings look like and how much of a negative impact scarcity, higher rates, and supply chain bottlenecks have," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles on Wednesday (10/13), to Reuters, "many of those reasons are presently reflected in the current state of stock prices," he continued. Moving back to the situation in Indonesia on Thursday (10/12), shows positive signs with the closing of IHSG succeeded to climb and approach the psychological level of 6,500. However, at the same time, the rupiah exchange rate weakened against the United States (US) dollar. IHSG closed up 0.41% to a level of 6,486.27, with the transaction value at the end of trading more than Rp19.049 trillion. Meanwhile, foreign net buys reached Rp1.25 trillion. At the end of Thursday (10/12), 193 stocks finished higher, 310 stocks were corrected, and 157 stocks remained unchanged. Director of MNC Asset Management Edwin Sebayang explained that the fourth cut in Indonesia's economic growth projection by the International Monetary Fund (IMF) would negatively affect the index. Despite what's happening with the situation on IMF, there are also many catalysts that affect the market including, the COVID-19 pandemic situation, vaccine rollout, and the provision of the growing economy happening in the world. With the market still being volatile, we can only hope for a more sustainable change for markets across the world.

Sources :


CNBC Indonesia

Financial Times

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