World Bank cuts global growth outlook

A mixture of events ranging from the unusually harsh winter in the US to the Ukraine crisis have contributed to a  bumpy start to the year, leading the World Bank to scale back its outlook.

Chinese national flag on a ferry crossing the Chang Jiang river in Wuhan
Source: Bloomberg

It’s now bracing for a slower global growth at 2.8%, down from 3.2%, forecast in January for this year’s growth. The outlook for developing countries has been trimmed to 4.8% from 5.3%. Key markets such as the US  are now expected to expand at 2.1% this year, instead of 2.8%, and China will come in a tad lower at 7.6% from 7.7%.

The downgrade from the World Bank reaffirms the view of the market, which has seen a confluence of factors that have been dampening growth.  For example, bad weather in the US was reflected in weak Q1 jobs data, the ongoing tension in Ukraine has been a downer for market sentiment and partly pushing up oil prices, lastly concerns over China’s hard landing have regularly been raised.

Despite the downgrade by the World Bank, signs of strength have been filtering out during April and May, leading to expectations that Q2 might see a rebound from the jitters in Q1. The positive stream of data coming out of the US includes last week’s non-farm payrolls, which came in at 217,000, above market expectation of 215,000. The improved market sentiment is also reflected in the major bourses, which closed at record highs this week and continues to grind higher despite naysayers.

Last week’s monetary policy decision by the ECB to cut rates should also set the eurozone on course for recovery and help developing countries as a market for their exports. That will be a further boost for China as data released on Monday saw headline export numbers come in at a strong 7%, above the market expectations of 6.7%, according to data released on Monday. Some improved signs of activity came from Europe and the UK data yesterday, where April industrial production rose 3%, better than the 2.7% market estimates.

The downside risk at the moment appears to be the gas pricing dispute between Russia and Ukraine. One other risk in the medium term, also highlighted by the World Bank, is the potential of financial turmoil in emerging markets once the US Federal reserve raises its interest rates. This could see a pullback in liquidity in global markets, however, this is likely to be an issue in 2015 rather than 2014.

So far, the World Bank expects the global economy to recover fast enough that it kept its forecasts for the next two-years unchanged at 3.4 percent and 3.5 percent, respectively.

We’ll be watching closely the developments from the OPEC meetings in Vienna today, where members will decide whether to raise production to meet an expected hike in demand in the second half of the year, whatever is decided it will cause movements in the oil price.

Ahead of the Singapore Open

S&P snapped its four day streak of record high closes, ending Tuesday trade 0.02% lower, at 1,950.79 points. Dow Jones was up 0.02% at 16,945.92, and the Nasdaq rose 0.04% at 4,338.00.

We’re calling for the MSCI Singapore to open lower by -0.07% at 374.60.

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