IMF: World Economic & Financial Market Update

IMF despite all its crisis, is doing some good research work . It publishes two reports bi-annually (i.e. in April and in Sep) on world economy and world financial markets. I had covered the April Eco Outlook here.

Now, it has started to update its forecasts between the two reports i.e. for its April outlook in 2007, it has presented its update now. The Economy update is here and the financial market update is here. This is a great initiative. The summaries are as follows:

World Economy

  • IMF has revised the world economy growth upwards for 2007 from 4.9% (projected in April 2007) to 5.2%.
  • For US, the growth has been revised lower from 2.2% to 2%. For most of European nations the growth has been revised upwards. I particular for Germany- by 0.8% to 2.6%. For Japan also, it has been revised upwards.
  • The growth revision has been pretty high in emerging markets. Russia by 0.6% to 7%, China by 1.2% to 11.2%, India by 0.6% to 9%.
  • The risks:

    With sustained strong growth, supply constraints are tightening and inflation risks have edged up since the April 2007 World Economic Outlook, increasing the likelihood that central banks will need to further tighten monetary policy. The risk of an oil price spike remains a concern.

Financial Markets:

  • Despite strong macroeco performance, financial markets are a concern mainly in credit markets.  Credit markets risks have increased on account of sub-prime concerns.
  • WEO update predicts rates rising on account of higher inflation, so this would make sub-prime markets worse as mortgage rates would rise.
  • Sizable LBOs could pose a problem as interest rates increase.
  • See the fabulous charts in the report especially the one which shows volume of covenant lite loans has increased quite substantially.

 This is good stuff from IMF. A nice simple read.

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