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IMF cuts global growth forecast for second time in three months

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The latest figures from China showed that its economy slowed to an annual growth rate of 6.4% in the fourth quarter, the worst since the financial crisis, but full-year growth exceeded expectations at 6.6%.

The news follows the announcement of a large-scale stimulus programme in China to help avert a slowdown, although a breakthrough in trade talks with the US is still much-needed and apparently some way off.

Also on Monday the International Monetary Fund (IMF) cut its forecast for the global growth for the second time in three months on Monday, predicting it will grow at the weakest pace in three years this year and warning that trade tensions present further downside risks. It blamed weaker demand across Europe and volatility in financial markets. It now predicts global growth of 3.5% this year, down from the 3.7% forecast in October. It then cited risks such as a renewed tightening of financial conditions, a “no deal” Brexit and a deeper-than-anticipated slowdown in China.

Positive news from the UK this week as data showed employment hitting its highest level on record at the end of 2018, with pay also growing at the fastest pace for a decade. Regular pay excluding bonuses rose by an annualised 3.3% in the three months to November, according to the Office for National Statistics (ONS). When including bonuses, pay grew by 3.4 per cent, the most rapid growth since 2008. Thanks to lower inflation regular pay is now up 1.1 per cent in real terms i.e. once inflation is taken into account.

The unemployment rate over the period matched its previous low of 4% and the employment rate rose to 75.8%, the highest since records began in 1971. Encouragingly, full-time work accounted for most of the rise in employment.

The data jars with reports of a slowdown in the economy and businesses being reluctant to invest because of Brexit uncertainty. In addition, an increase in the number of unfilled vacancies suggests that wage inflation could continue to rise.

Clashing with the good news on wages, sentiment in the UK manufacturing sector fell sharply in January because of uncertainty over Brexit, according to the latest industrial trends survey from the Confederation of British Industry (CBI).

The CBI's monthly gauge of industrial orders fell to -1 this month from +8 in December, below expectations of +5.

The gauge of manufacturing expectations declined to -23 in the three months to January from -16 in the three months to October, marking its lowest level since July 2016. Meanwhile, optimism about exports for the year ahead fell at the fastest pace since 2009. Manufacturing output grew at an above-average rate in the three months to January. Total orders were flat, however, with domestic orders steady and export orders up only slightly from a drop in October.

 

Click here to read this week's Market Roundup and Company Focus

Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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