Increased Risk Aversion Is The Global Theme
Alvexo | Jan 20, 2016 11:59AM ET
Headwinds currently facing the potential for major world economies to prosper in 2016 and 2017 like lifted interest rates in the United States, the sticky equities situation in China and the crashing of commodities such as oil have spurred the International Monetary Fund to downgrade its forecast for world economic growth. While previous forecasts before the implications brought on by the aforementioned problems took a firm hold, were for 2016 and 2017 growth to see 3.60% and 3.80%, they are now each lessened by 0.20% by the IMF, while the last year’s metric is currently being estimated at 3.10%. In the face of this new adjustment, IMF Chief Economist Maurice Obstfeld has stated that the collapsing price of oil brings about benefits to market participants that are not fairly calculated or considered, and that the tumult in Chinese markets is being drastically overplayed. However, the consequences and potential solutions from governments for these troubles may be what affects the marketplace most heavily. The IMF made it clear that if the current trends leading to risk aversion persist, then the impact on the global economy along the lines of what is being cried in the town square may come to fruition.
Equally alarming though not entirely surprising, the International Energy Agency has supplied the markets with its latest troubling statistics, regarding the vast array of pressures on oil’s price and not the least of which is significant oversupply. While low demand reigns in the market for this commodity, increasing supply from Iran means supply outpaces demand for the third year in a row to the tune of 1.20 million barrels per day at the very least. The price of oil recently sunk below $28 per barrel within both popular benchmarks for the first time since 2003, and threatens to go lower should trends persist. Alongside and compounding issues in oil, global equities have resoundingly reacted to China by dropping lower within the last week, with this and more being discussed today in Davos, Switzerland by leading global policymakers. A path from out of the dark is unlikely to be discovered in a day alone, but perhaps policymakers can glean an astute strategy as to how major economies can work together to spur renewed financial health.
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