IMF Again Cuts Global Economic Growth Forecast

October 9, 2012 01:37 AM

What Traders are Talking About:

* IMF cuts global growth forecast. For the second time since April, the International Monetary Fund (IMF) cut its global growth forecast. The IMF now sees 2012 growth at 3.3%, down 0.2 percentage points from July, and 2013 growth at 3.6%, down 0.3 points from its previous forecast. The IMF says the risks of a serious global slowdown are "alarmingly high" with the greatest risks being the U.S. "fiscal cliff" and the euro-zone debt crisis. The IMF also lowered its growth forecasts for key emerging countries, including China, India and Brazil, but said "we do not see a hard landing in any of these countries."

The long and short of it: The IMF forecasts set the tone for its twice-yearly meeting of financial ministers/officials, which will be held in Tokyo later this week, and further adds to investor concerns about the health of the global economy.

* China tries to increase liquidity. China's central bank injected 265 billion yuan (around $42 billion) into the country's money markets overnight via reverse bond repurchase agreements in an attempt to improve liquidity and boost economic activity. This is the second largest ever injection into the country's money markets by the central bank. The move reportedly prompted a pickup in lending, but is not expected to calm investor concerns with the economy, as China's third quarter GDP is expected to be down from the second quarter when data is released next week.

The long and short of it: China's central bank has been injecting short-term cash into money markets to help ease credit strains instead of cutting bank reserve requirements for fear of a flare-up in consumer inflation and property prices. Many investors take this move as yet another sign bank reserve requirements will not be cut again anytime soon.

* Odds of El Nino decline. The chances of El Niño developing this year are declining, according to the Australian Bureau of Meteorology. The bureau says topical Pacific waters are cooling and other ENSO indicators such as the Southern Oscillation Index (SOI) and tropical cloud patterns have persisted at neutral levels since late July. Given these conditions, the Aussie scientists say the chance of El Niño developing in 2012 has reduced further over the past two weeks.

The long and short of it: This forecast is not promising for U.S. winter wheat areas or the Corn Belt, which are trying to recover from prolonged drought.


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