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IMF downgrades global growth forecast: Update

  • Market: Crude oil, Emissions, Metals, Natural gas
  • 15/10/19

Updates with details throughout

The IMF yet again has marked down its projections for global economic growth this year and next because of the US-China trade war.

The IMF, in an update to its World Economic Outlook, projected today that global GDP will grow by 3pc this year, down by 0.2 percentage point from its forecast in July, and lower than the 3.6pc growth in 2018. The forecast for 2020 was lowered by 0.1 percentage point to 3.4pc. IMF forecasts are widely used in the modeling behind key oil demand projections, including the IEA's.

The change in the latest update of its key forecast is the fifth consecutive downward revision by the IMF, each tied to the gradual escalation in tariffs affecting trade between the world's two largest economies, the US and China.

"We are, once again, downgrading growth for 2019 to 3pc, its slowest pace since the global financial crisis," IMF director of research Gita Gopinath said. The downgrade would have been even greater if not for the efforts by central banks in advanced and emerging economies to offset the effect of trade wars on their economies, the IMF said. "With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot," it warned. Without that intervention, global growth would have been 0.5 percentage point lower this year and next.

Both the US and China said they made progress in the latest round of talks in Washington on 10-11 October, but the negotiations' only tangible outcome was a delay in the US' planned increase in tariff rates on about half of imports from China. "We look forward to more details on the recent tentative deal reached between China and the US," Gopinath said.

The US was scheduled to increase tariffs on about half of imports from China to 30pc from 25pc today. Not moving forward with the hike would reduce the negative effect of the trade war on global GDP to 0.7 percentage point next year, from the 0.8 percentage point estimate the IMF cited last month, Gopinath said.

If the US decides not to proceed with the scheduled imposition of a 15pc tariff on the remaining volume of imports from China on 15 December, the negative effect on global GDP would be just 0.6 percentage point next year. The effect of trade war would be more prominently felt in China, with up to a 2 percentage point reduction in its GDP next year if all US tariffs go into effect, compared with up to a 0.6 percentage point decline in US GDP growth rate.

The IMF forecasts US GDP growth at 2.4pc this year and 2.1pc in 2020. It projects China's economy will grow by 6.1pc this year and 5.8pc next year.

The IMF lowered the 2019 forecast for almost every major advanced and emerging economy. "The global economy is in a synchronized slowdown," Gopinath said. India's economy is projected to grow by 6.1pc this year, a 0.9 percentage point reduction from the previous forecast. The eurozone economies are forecast to grow by 1.2pc this year, the same as the forecast for the UK. The forecast assumes that the UK will withdraw from the EU in an orderly fashion, under mutually agreeable terms. A "no-deal Brexit would reduce the level of GDP in the UK by 3-5pc in the next two years and by 3pc in the long run," Gopinath said.

The IMF cut Saudi Arabia's projected growth this year to 0.2pc this year, down from its previous 1.9pc estimate. It explains the downward revision by the weakness in oil prices and the extension of the Opec/non-Opec production restraint agreement. The effect of the 14 September attacks on Saudi oil facilities "is difficult to gauge at this stage but adds uncertainty to the near-term outlook," the IMF said.

It projects that Iran's economy will shrink by 9.5pc this year as a result of US sanctions on the country's oil sector. The IMF previously estimated the decline in Iran's GDP at 6pc this year.

Another target of US sanctions, Venezuela, is projected to see the decline in its GDP accelerate to 35pc this year, shrinking its economy to barely a third of the level in 2013.


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07/11/24

German energy-intensive industry reduces output

German energy-intensive industry reduces output

London, 7 November (Argus) — Production from Germany's energy-intensive industrial sectors was lower in September than a year earlier for the first time in seven months, driven by lower generation from the chemicals sector. Energy-intensive industrial production fell by about 3.3pc in September from August, according to data from German statistical office Destatis ( see data and download ). This was driven largely by a 4.3pc fall in output from the chemicals industry. And overall industrial output was about 1.8pc lower than in September 2023, falling year on year for the first time since February this year. The chemicals industry has warned of lower business confidence in the sector since the summer . Energy-intensive industrial branches previously showed signs of a slow recovery, but general manufacturing output across Germany has been on a consistent downward trajectory in recent months ( see manufacturing index graph ). Manufacturing output across all industrial sectors fell on the month by about 2.5pc, having risen on the month by 2.6pc in August. Third-quarter output as a whole was about 2pc lower than in the second quarter. Industrial economic activity has remained "very weak" recently, German economy and climate ministry BMWK said. But it expects a bottom to form in about the new year. BMWK has predicted that Germany will be in a technical recession in 2024 , before a return to 1.1pc GDP growth in 2025. The German economy started on a downward trajectory in 2022 , triggered by higher energy prices on the back of a halt to Russian gas deliveries to the country. And it has since been hampered by other structural factors such as labour shortages and a high bureaucratic burden. Higher gas prices could drive output lower A steady rise in gas prices in recent months could lead industrial firms to curtail domestic industrial production or use LPG instead of gas for some industrial processes. Argus assessed the German THE everyday price at an average of €40.68/MWh in October, about 56pc higher than the €25.98/MWh in February, the index's lowest point this year. Much higher gas prices since 2022 have driven a drop in Germany's industrial gas demand. Gas use in German industry of 256.5TWh in 2023 was about 22pc lower than the pre-crisis 2018-21 average of 327.6TWh, according to Destatis data released earlier this week ( see sector demand graph ). Firms either curtailed production in reaction to higher prices or switched to LPG in some processes in which gas is used as an energy carrier. But some processes, such as the production of ammonia through the Haber-Bosch-synthesis, use methane as a feedstock, which means they cannot shift to LPG as easily. Gas used as a feedstock reacted more strongly to the energy crisis than the gas used for energy. Gas use as a feedstock in the chemicals industry fell by 36pc in 2023 from 2021, while gas use for energy fell by only a quarter. Many fertiliser producers curtailed capacity in 2023, and Europe's largest fertiliser producer, Yara, expects its European gas costs to rise on the year this winter . The producer has already indicated it will shift its focus towards cheaper ammonia production in the US and away from Europe. Industrial gas use on track to rise in 2024 German industrial gas demand is on course to be higher this year than in 2023, based on daily data ending at the end of October. Industrial gas use for production processes other than space heating was 746 GWh/d in January-October, about 8pc higher than a year earlier, according to Argus estimates. But if September's industrial output drops extend to a multi-month trend, this would pull down the average for this year as a whole. Industrial demand typically falls in December when the holiday period limits economic activity, which could push down the average further. And the collapsed German governing coalition is unlikely to send strong recovery signals to the German economy. German market area manager THE publishes a combined dataset for gas demand by industry and the power sector. Argus splits out power-sector gas demand data by assuming operational efficiencies of 39-42pc, in line with fuel use data from Destatis, and factors out seasonal demand swings linked to space heating by looking at analogue trends in the residential and commercial sector ( see demand split graph ). Argus' estimates diverge from Destatis' annual demand data by only about 1-3pc, except for a 6pc gap in 2021 ( see Destatis vs Argus estimates graph ). By Till Stehr German manufacturing index index, 2021=100 German industrial gas demand by sector TWh German industry and power demand split GWh/d Destatis data vs Argus estimates GWh/d Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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07/11/24

German government collapse could delay energy policies

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Deforestation in Brazil's Amazon plunges 31pc


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07/11/24
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07/11/24

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EU minor metal markets await US reaction to Trump win


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EU minor metal markets await US reaction to Trump win

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"I expect that only the people who are the most risk-prone or certain about the duties will want to stockpile this early," a trading firm said. By Sian Morris and Cristina Belda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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