Latest news with #financialconditions
Arabian Business
11 hours ago
- Business
- Arabian Business
Global economic growth revised up to 3% in 2025, but trade tensions keep outlook fragile: IMF
The International Monetary Fund has revised its 2025 global growth forecast to 3 per cent, up from 2.8 per cent in April, citing stronger-than-expected trade activity, improved financial conditions, and easing tariff tensions between the United States and its trading partners. However, the Fund warned that this resilience remains 'tenuous' amid high uncertainty, elevated public debt, and geopolitical risks. In its World Economic Outlook Update released on Tuesday, the IMF projected global growth would rise slightly to 3.1 per cent in 2026, still below both the pre-pandemic average of 3.7 per cent and the 3.3 per cent seen in 2024. JUST RELEASED: Global growth is projected at 3.0% in 2025 and 3.1% in 2026—somewhat higher than in April, but below earlier pre-tariff forecasts—and with risks still clouding the outlook. Read the full analysis and watch the briefing. — IMF (@IMFNews) July 29, 2025 'This resilience is welcome, but it is also tenuous,' said Pierre-Olivier Gourinchas, the IMF's Chief Economist. 'The current trade environment remains precarious.' Trade front-loading buoys activity – for now Much of the global economy's first-half strength came from front-loading of exports to the US, as companies rushed to beat tariff hikes announced in April. The US partially rolled back these increases in May, bringing the effective tariff rate down to 17 per cent from 24 per cent. Yet, the Fund noted that tariffs remain historically high and could increase again after August 1, when the current pause is set to expire. In response to this front-loading, real GDP in Europe and Asia saw a boost. The euro area grew by 2.5 per cent in Q1, led by surging exports – particularly from Ireland. China's economy exceeded expectations with 6 per cent annualised growth, while the US saw a 0.5 per cent contraction due to subdued consumption and inventory distortions. Financial conditions ease, but risks remain The IMF noted that financial conditions have improved globally, with equity markets rebounding and the US dollar weakening by around 8 per cent since January. This has provided room for emerging markets to ease policy, even as long-term interest rates in advanced economies have edged higher amid growing fiscal concerns. Global inflation is expected to fall to 4.2 per cent in 2025 and 3.6 per cent in 2026, broadly in line with April forecasts. However, in the US, inflation is ticking up again, driven by tariff-related cost increases and dollar depreciation. In contrast, the euro area and other large economies are seeing more subdued inflationary trends. 'Without comprehensive agreements, ongoing trade uncertainty could increasingly weigh on investment and activity,' Gourinchas said. Growth upgrades across the board The IMF upgraded growth forecasts for most regions. In the US, GDP is now expected to grow by 1.9 per cent in 2025 and 2 per cent in 2026, buoyed by the fiscal stimulus contained in the recently passed One Big Beautiful Bill Act (OBBBA). The Fund estimates this package could raise US output by 0.5 per cent on average through 2030. China's growth was revised up by 0.8 percentage points to 4.8 per cent in 2025, reflecting stronger-than-expected performance and reduced tariffs. India is projected to grow by 6.4 per cent in both 2025 and 2026, with both figures slightly higher than earlier estimates. The euro area is expected to expand by 1 per cent in 2025, supported by front-loaded pharmaceutical exports from Ireland. However, excluding Ireland, the upgrade is more modest. Growth across the Middle East and Central Asia is forecast at 3.4 per cent in 2025, also a 0.4-point upgrade from April. Outlook clouded by policy uncertainty and debt Despite the modest upgrades, the IMF warned of significant downside risks. A renewed escalation in tariffs, expiration of temporary trade reprieves, or supply disruptions from geopolitical tensions – especially in the Middle East or Ukraine – could all derail momentum. Elevated public debt levels in economies such as the US, France, and Brazil also heighten financial market risks. 'Countries must reduce policy-induced uncertainty by promoting clear and transparent trade frameworks,' the Fund said. The IMF urged countries to restore fiscal space and protect central bank independence, cautioning that undermining monetary credibility would weaken efforts to manage inflation and stabilise economies. In the absence of durable trade agreements, the Fund expects world trade as a share of output to decline from 57 per cent in 2024 to 53 per cent by 2030. It called for multilateral efforts to lower tariffs and modernise trade rules, warning that persistent fragmentation could depress long-term productivity and investment.
Wall Street Journal
5 days ago
- Business
- Wall Street Journal
Of Meme Stocks and Main Street
If financial conditions are restrictive, Wall Street sure hasn't noticed. Stock indexes hit fresh records this week, and speculative meme stocks are back to mania levels. Meanwhile, smaller businesses in the non-financial economy are tightening their belts amid uncertainty over tariffs and the labor market. Trump officials like to say their policies are focused on helping Main Street, not Wall Street. 'Wall Street has done very well over the past few decades, and now it is Main Street's turn to shine,' Treasury Secretary Scott Bessent said last month. In case he hasn't noticed, Wall Street is doing great, Main Street not so much. President's Trump's whipsawing tariffs have increased volatility in equities, fixed-income and commodity markets along with foreign exchange rates. Such fluctuations make it harder for businesses to invest and may mean they have to pay more to hedge financial risks. But the volatility has been a gold mine for Wall Street trading desks. Financial industry news site Investment Executive reported this week that the largest U.S. investment banks recorded a 17% aggregate increase in trading revenues in the second quarter compared to the same period last year. Goldman Sachs and Morgan Stanley reported more than a 20% increase in equities trading revenue. Talk about springtime for bankers.
Bloomberg
6 days ago
- Business
- Bloomberg
S&P Upgrades Pakistan's Rating on Better Financial Conditions
S&P Global Ratings upgraded Pakistan's credit rating, citing better financial conditions in a boost for the government's efforts to bolster the South Asian country's economy. It upgraded Pakistan to 'B-' from 'CCC+', with a stable outlook on its long-term rating. Other countries that S&P rates similarly are Nigeria, Egypt, Kenya and Ecuador. Most dollar bonds extended gains.
Reuters
7 days ago
- Business
- Reuters
Conditions as loose as 2021 call into question more Fed cuts
LONDON, July 24 (Reuters) - Amid all the mounting political pressure on the Federal Reserve to resume cutting interest rates, Chair Jay Powell is already overseeing the loosest financial conditions in the U.S. economy since before the central bank started hiking early in 2022. To be sure, the complicated debate about the Fed's next move includes many opinions on a host of issues, including the potential inflationary effect of tariffs, the impact of immigration curbs on wages and job growth, high mortgage rates and lofty government funding costs. The Fed's own modeling suggests that its policy is still moderately "restrictive" relative to where long-run neutral rates should be, mainly because inflation is still above target, the jobless rate is near historic lows and real economic growth has rebounded from a first-quarter hiccup. However, the Chicago Fed's national index of broad financial conditions in the U.S. economy has fallen to its lowest level in more than three years, suggesting financing in the economy is more than ample. The index captures a blizzard of financial inputs from short- and long-term interest rates to equity and energy prices. The likely culprits for its decline include the rebound in U.S. stock markets from April lows back to record highs, the dollar's plunge this year and crude oil prices running at a year-on-year decline of some 20% since April. There are many other indexes of financial conditions, of course, but they mostly tell a similar story. Goldman Sachs' U.S. equivalent is back down to where it was late last year, just a whisker from its three-year low. One takeaway from these readings is that despite trade uncertainty and sticky borrowing costs, the overall economy is doing just fine and has enough financial oxygen to continue chugging along, perhaps even a bit too much given the above-target inflation rate. And, if so, the Fed's current policy stance may be less restrictive than it appears on the surface, even before slashing rates further as demanded daily by President Donald Trump. In the U.S. economy today, both jobs and cash holdings appear plentiful. Business confidence has also rebounded after taking a sharp knock from the April tariff shock, a trend that July business surveys are likely to confirm this Thursday. U.S. household deposits clocked in at $4.46 trillion at the end of the first quarter, less than $100 billion below the record peak of 2022. Cash-like money market fund assets, meanwhile, hit a record of $7.1 trillion earlier this month. And U.S. stocks still continue to push further into record-high territory, with retail investors seen as key drivers of demand. Even frothier parts of the U.S. market, such as "meme stocks" and crypto tokens, are back in vogue. Resuming rate cuts at this juncture could add significant fuel to that rekindled fire, an argument for using caution in doing so. For all the focus on borrowing costs and credit as key metrics of spending, the "wealth effect" of rising stocks is powerful. Some estimates show a "wealth effect" from investments added as much as 1% to U.S. consumer spending last year. This was driven by the more than 20% of households with direct stock ownership and the over 50% with retirement accounts. Trump's argument that Fed rates are too high and should be cut by more than three percentage points to 1% hinges variously on the idea that high mortgage rates are preventing people from buying houses and that U.S. government borrowing costs are too high. Indeed, the likely hefty schedule of Treasury bill sales expected over the coming year may be the key reason for the White House's urgency. So regardless of what political pressure is brought to bear, and even if tariffs don't prove inflationary, the Fed may struggle to justify steep rate cuts in this environment. The opinions expressed here are those of the author, a columnist for Reuters -- Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn. Plus, sign up for my weekday newsletter, Morning Bid U.S.
