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USD, JPY Could Rise as IMF Global GDP Outlook Gets Cut Again

USD, JPY Could Rise as IMF Global GDP Outlook Gets Cut Again

Rich Dvorak, Analyst

IMF WORLD ECONOMIC OUTLOOK REPORT REVEALS GDP GROWTH STILL SLUGGISH

  • The International Monetary Fund (IMF) released its July 2019 World Economic Outlook report and noted that global GDP growth remains subdued
  • Global GDP growth forecasts for 2019 and 2020 were both lowered by 0.1%
  • Safe-haven currencies like the US Dollar and Japanese Yen could benefit if market sentiment deteriorates in response

Another IMF World Economic Outlook Report, another downgrade to global GDP growth. The IMF revealed a cut to its global GDP forecasts once again as the trend of slower economic activity continues to bite. Projections for 2019 and 2020 were both lowered by 0.1%, down to 3.2% and 3.5% respectively. The July 2019 update listed sluggish GDP growth across the board with economic activity being weighed down broadly by lingering risks surrounding trade policy uncertainty, Brexit and geopolitical tensions. World trade volume for 2019 is also expected keep drifting lower with the 2019 forecast cut by another 0.9% to 2.5%.

IMF WORLD ECONOMIC OUTLOOK JULY 2019 GDP PROJECTIONS

IMF World Economic Outlook Report July 2019 Global GDP Growth Forecast

Source: IMF

Yet, consumer confidence has held firm which could be largely attributable to resilience in performance of the services sector and robust employment growth. Notable changes in advanced economies detailed upward revisions for US and Eurozone GDP growth estimates to the tune of 0.3%. On the contrary, Asia is expected to grow 6.2% this year which is 0.1% lower than previously estimated with the economic outlook downgrade driven primarily by the adverse impact of tariffs on trade and investment. Also, Latin America is expected to see the largest slowdown in GDP growth with the region now expected to show 0.6% growth this year and is 0.8% lower than the IMF’s prior 2019 GDP forecast.

SAFE-HAVEN CURRENCIES US DOLLAR & JAPANESE YEN COULD BENEFIT

The IMF’s July 2019 World Economic Outlook report also detailed that risks to the forecast are mainly to the downside with the estimated rebound in growth later this year and into 2020 is underscored as “precarious,” adding that “downside risks have intensified” since the April 2019 report. Furthermore, the IMF stated that “business sentiment and surveys of purchasing managers for example point to a weak outlook for manufacturing and trade, with particularly pessimistic views on new orders.” That said, in consideration of slower GDP growth forecasts, lingering uncertainty and heightened risks, there could be potential for safe-haven currencies like the US Dollar and Japanese Yen to rise if market sentiment takes a turn for the worse.

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-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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